TPG, OTPP pursue carve-up of Australia's Fairfax Media

The prospective buyers are willing to pay A$0.95 per share in cash plus one share in the newly listed company – which is valued at A$0.25-0.30 per share – for all outstanding shares in Fairfax, according to a filing. As of early afternoon trading on May 8, Fairfax’s stock was trading at A$1.09, up 2.55%, valuing the entire company at approximately A$2.5 billion ($1.85 billion).

The assets TPG and OTTP are seeking to hold under private ownership are: the Domain Group, Fairfax’s real estate listings business; Australian Metro Media, which comprises the metropolitan newspaper titles; and the events and digital ventures business, excluding subscription video-on-demand unit Stan. This would leave Fairfax’s regional, community and agricultural media titles; New Zealand publishing assets such as Stuff.co.nz; radio station network; and Stan in the newly listed entity.

The offer is based on the assumption of Domain achieving EBITDA of A$115 million for the 2017 financial year, and Australia Metro Media and the events and digital ventures business delivering a combined A$34 million. TPG and OTPP would acquire Domain on a cash-free, debt-free basis with all of Fairfax’s existing debt transferred to the listed entity.

The Fairfax board is reviewing the offer. In recent months it has explored a number of different options for the business, including a merger with New Zealand media and entertainment business NZME – which New Zealand regulators declined to authorize last week – and the spin-out of Domain into a separate listed company that would be up to 60% owned by Fairfax.

The board said the Domain separation process remains in progress, as are proposed major structural changes to editorial operations at Australian Metro Publishing intended to deliver A$30 million in annual cost savings, with much of that expected to come in the form of job cuts.

Fairfax claims to connect with 70% of Australians and 90% of New Zealanders through its portfolio of online marketplace, information and entertainment properties. The company reported revenue of A$1.81 billion for the 12 months ended June 2016, down slightly on the previous year. However, it swung from a net profit of A$87.2 million to a net loss of A$883.2 million.

These losses are largely due to A$1 billion in impairment costs tied to the Australian metropolitan and community titles. These divisions account for 58% of revenue but require restructuring in the face of a decline in print advertising and circulation sales that is not being offset by digital revenues. EBIT, excluding significant items such as impairment costs, came to A$88.2 million in 2016, with Metro Media alone contributing A$13.8 million.

Meanwhile, Domain generated A$296.6 million in revenue and A$107.8 million in EBIT, both up 33% year-on-year. Stan – a local equivalent to Netflix, run as a joint venture with Nine Entertainment – is part of a digital ventures portfolio that posted increases in revenue and EBITDA of 21% and 55%. It trades as part of the Metro Media division, alongside events.

TPG is currently in the market with its seventh pan-Asian fund, targeting up to $4.5 billion. Australian operations are led by Joel Thickins, who moved over from CHAMP Private Equity at the end of last year in place of Ben Gray, who has set up his own private equity firm. Recent TPG activity in the country includes the sale of Alinta Energy to Chow Tai Fook Enterprises for $3.1 billion.

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• Topics
• Australasia
• Media
• Buyouts
• Technology
• Australia
• TPG Capital
• OTPP