Fairfax shares will slide this morning after US private equity giant, TPG abandoned a bid, and Hellman and Friedman failed to lodge an offer by last Friday.
Rumours of Hellman and Friedman’s failure saw Fairfax slide more than 8% to $1.10 on Friday.
News of TPG’s departure will see the shares down under $1 very quickly this morning.
News of the collapse of the bid came a day after The Commonwealth Bank sides with Lachlan Murdoch, Bruce Gordon and James Packer and put receivers into the Ten Network, with a view of advancing $20 million or more in cash to help the TV network continue in business for a few more months to allow a possible sale process.
Fairfax chairman Nick Falloon reportedly received a letter from TPG on Sunday informing him of the abandoned its suggested$2.76 billion bid. However rival suitor Hellman & Friedman has indicated it’s still interested in pursuing its $2.8 billion offer but has yet to submit a binding bid, the Australian Financial Review reported.
Both TPG and Hellman & Friedman had a deadline of last Friday to make formal offers after flagging their initial interest in May. Media reports said Hellman and Friedman had submitted a “letter” to Fairfax on Friday but no one knows the contents.
But Hellman and Friedman is now being treated as not being seriously interested by Fairfax management and they will proceed with the plan to spin off a stake in the Domain online property website.
Details of that deal are expected when Fairfax releases its 2016-17 ful year results next month. “TPG has today exited the Fairfax due diligence process and has elected not to proceed with an offer,” a TPG spokesman told the media yesterday.
"TPG thanks the Board and senior management team of Fairfax for the integrity and focus they have brought to the discussions. We commend the current management for the job they are doing in managing and growing a valuable collection of traditional and new media assets.”
TPG sent an indicative proposal on May 8 offering $2.1 billion, or 95 cents per share, for Domain, Fairfax Media’s metropolitan media division, events, and digital ventures. On May 15 it increased the offer to a full take-over valued at $2.76 billion, or $1.20 per share.
Hellman & Friedman then sent the board a letter on May 17 with a preliminary bid of $1.25 per share for the entire company, a total value of $2.87 billion.
Fairfax shares were trading around 95 cents before the TPG offer, then reached a one-year high of $1.26 when due diligence started. Fairfax shares were around 71 cents in February 2016 when speculation emerged that it could start closing its metro papers or make big cost cuts.
CEO Greg Hywood confirmed that approach was being considered in a speech to a Sydney finance conference in May, and revealed that Fairfax was separating Domain from its Metro publishing division and would take close to a billion dollars in write downs as a result.
When the 2015-16 results were released last August, more than $900 million in write downs were confirmed Hywood’s stance on closing week day papers and concentrating on the weekend editions of the Sydney Morning Herald and Melbourne Age, and closing the weekend Financial Review and keeping the week day editions.
But Fairfax slowly realised that if it stopped week day editions of the Herald and Age it couldn’t afford to just publish the AFR on that basis because the costs of production and distribution would be prohibitive.
Earlier this year Hywood confirmed that approach had ended, and between 30% and 40% of Domain would be floated off, with the papers integrated into the Domain operation (which they have been for the past five years). As part of that $30 million in new cost cuts in the metro papers were sought, with 125 jobs to be cut, which has now all but finished.
Then TPG appeared on the scene, followed by Hellman and Friedman. And now they have gown, subject to clarification from Hellman and Friedman as what they intend doing.
