Fairfax shares plunged yesterday after coming out of a trading halt of an hour from 10 am to allow a briefing to take place by the company as it sought to put the best possible complexion on its its rejection by the two US private equity groups, TPG and Hellman and Friedman.
The shares fell more than 18% to a low of 91.5 cents in the minutes after the 11am restart. They bounced back to trade around 95 cents – off more than 13% from Friday’s $1.10 when they were down more than 8%, and then edged higher to end around 98 cents for a loss on the day of 10.9%.
That means the shares are nearly 28% off the most recent peak of $1.26 hit in mid May when it looked like TPG and Hellman and Friedman would get into an auction fir Fairfax.
Nothing of the sort and the outlook for Fairfax is another weak profit report next month for 2016-17 and the details of the plan to float off part of Domain, the online real estate hostings website.
Fairfax released a statement (http://www.fairfaxmedia.com.au/pressroom/au—nz-press-room/au—nz-press-room/fairfax-proceeds-with-domain-separation-ends-discussions-with-private-equity) yesterday confirming that TPG had abandoned its bid and rival firm Hellman & Friedman had also failed to lodge by Friday’s deadline.
Fairfax Media management this morning reiterated that it would now now proceed with its plan to spin off Domain.
CEO Greg Hywood said in the statement the company has been making excellent progress with preparations to meet its timetable for completing the spin-off by the end of 2017 and has progressed all necessary regulatory approvals.
In a trading update released in yesterday’s statement Fairfax underlined the need for the spin off and why private equity walked – especially TPG. Group – revenue will be down around 6% (or around $100 million to $1.73 billion) for the year to June 30.
Earnings before interest, tax, depreciation and amortisation put at between $262 million to $266 million. This is a fall of round 7% from the $283 million of EBITDA for 2015-16.
It said Domain had continued to improve earnings in the second half, driven by strong growth in its digital business, with overall revenues up 10%.
But the slide in revenue in Fairfax’s newspapers and radio businesses here and in NZ continued.
The Metro Media papers (AFR, SMH and Age) saw a 12% slump in revenues in the year to June, the Community papers an 11% slide, NZ, 4% (including currency adjustments) and Macquarie Radio saw a 5% drop.
TPG had said it would keep the metro papers because they were essential to the success of Domain and provide a complementary marketing channel for the website listings.
But the continuing revenue loss and weak outlook (and no doubt the need for another round of unpopular cost cutting) proved to be too much of a hurdle for TPG and probably for Hellman and Friedman.
On the conference call with analysts on Monday morning, Fairfax chairman Nick Falloon said there were “no specific reasons” why both Hellman & Friedman and TPG walked away after spending four weeks on due diligence.
After receiving a letter from Hellman & Friedman on Friday afternoon that said it "couldn’t reach their bid" of $1.25, Fairfax continued to speak with TPG on Saturday and Sunday.
"But it appeared that the complication of our business was such that they didn’t want to bid for the whole business," Mr Falloon said.
"The Fairfax board believes the company is well positioned to continue to deliver substantial returns for shareholders into the medium and long-term future," Mr Falloon said in the statement to the market.
"Fairfax’s digital businesses are growing strongly and we have established plans for our traditional media businesses. With media reform expected later this year, Fairfax will actively look to maximise value given the strategically important businesses we own."
TPG and its partner,Ontario Teachers’ Pension Plan Board made a bid for Fairfax in May, initially offering 95 cents a share and increasing it to $1.20.
Hellman & Friedman followed with an offer valued at between $1.225 and $1.25 a share, valuing Fairfax at around $2.87 billion.
A price less than $1 a share looks the best bet – or $2.3 billion, which could still be too much the way revenue in the print businesses continues to weaken.
