Fairfax reviews unsolicited TPG takeover proposal

Pippa Chambers
By Pippa Chambers | 8 May 2017

The board at Fairfax is reviewing a takeover proposal from American private equity from TPG, which would see its property business Domain and its three major mastheads The Age, The Australian Financial Review and The Sydney Morning Herald, hived off.

On Friday evening Fairfax Media received a preliminary indicative proposal from a consortium led by private equity firm TPG Capital which prompted emergency meetings over the weekend.

A staff note from Fairfax CEO Greg Hywood said the proposal was unsolicited, is non-binding and is subject to a number of conditions including Foreign Investment Review Board approval.

A summary of TPG's indicative proposal on the ASX today includes creating a newly listed 'New Media Co', which TPG has valued at $0.25 - $0.30 per share. The proposal includes the acquisition of Domain, the company's three largest newspapers, events and digital ventures, excluding streaming player Stan.

TPG is one of the largest private equity investment firms in the world, focused on leveraged buyouts, growth capital and leveraged recapitalisation investments. It has invested in the likes of Myer, Spotify, Airbnb, SurveyMonkey, Uber, Lenovo, Chobani and Burger King, as well as many companies in the healthcare, industrial, natural resource, real estate, tech and software sectors. Its interest in Fairfax has been long rumoured.

It would leave behind its NZ business, regional assets and the 50% share in streaming service Stan.

In a note to staff Hywood said “appropriately, the Fairfax Board is reviewing the indicative proposal”.

“There is no certainty that the indicative proposal will result in an offer for Fairfax, what the terms of any offer would be, or whether there will be a recommendation by the Fairfax Board,” Hywood said.

“There is also no certainty that the indicative proposal is capable of being implemented given the complexity involved in splitting the businesses. Regardless of the indicative proposal, we will continue with our present strategies including our announced Metro changes and the potential separation of Domain Group.”

In a statement on the ASX this morning, the notice said Fairfax shareholders do not need to take any action in response and the board will update them when they have fully assessed the proposal.

“Regardless of any potential proposal, the Fairfax board believes that Fairfax has a very attractive future and the company is well positioned to continue to deliver shareholder value,” the filing said.

Last week staff at Fairfax's Sydney Morning Herald and The Age in Melbourne voted to walk off the job for a week following Fairfax Media's announcement that it will cut 125 editorial jobs. The job cuts, which impact 25% of Fairfax's metro newsroom, are part of a $30 million restructure announced earlier this year.

On Friday Fairfax Media staff began lobbying advertisers and investors to back striking workers and the current protest.

In February Fairfax Media confirmed it plans to split out Domain into its own entity to maximise shareholder value as the media company’s print ad revenue continues to decline at a rapid rate.

Check out a summary of the TPG Consortium’s indicative proposal below:

KEY TERMS:

Consideration under the TPG Consortium’s Indicative Proposal comprises:

  • $0.95 in cash and one share in a newly listed company (described by the TPG Consortium as “New Media Co”), which the TPG Consortium has valued at $0.25 - $0.30 per share
  • New Media Co would be created by demerging and listing the following existing Fairfax assets: Australian Community Media, New Zealand Media, Macquarie Media and Stan
  • The Indicative Proposal would be executed via two inter-conditional schemes of arrangement which would implement:
  • The demerger and listing of New Media Co, containing Australian Community Media, New Zealand Media, shareholdings in Macquarie Media and Stan, and the existing Fairfax net indebtedness; and the 100% acquisition of Fairfax, which would comprise at that time of only Domain Group, Australian Metro Media, Events and Digital Ventures (excluding Stan) (described by the TPG Consortium as “Domain Co”)
  • New Media Co would be separately listed on the ASX
  • The TPG Consortium propose to fund the Cash Consideration through a combination of equity (to be provided by the TPG Consortium) and debt. The level of acquisition indebtedness has not been specified

KEY ASSUMPTIONS:

The Indicative Proposal is based on a number of key assumptions, including:

Domain Co

  • Domain FY17 EBITDA of $115m, described as being based on broker consensus
  • Australian Metro Media, Events and Digital Ventures combined FY17 EBITDA of $34m, described as being based on broker consensus
  • The TPG Consortium acquires Domain Co on a cash-free/debt-free basis
  • Inclusion of corporate costs attributable to Domain Co (assumed quantum not specified)

New Media Co assumptions

  • All financial indebtedness of Fairfax is transferred to New Media Co
  • No assumptions underlying the TPG Consortium’s valuation for New Media Co have been provided

KEY CONDITIONS:

  • Final approval of each TPG Consortium member following satisfactory completion of a period of due diligence
  • Requisite regulatory approvals, including approval from the Australian Foreign Investment Review Board
  • Unanimous recommendation of the Fairfax Board of the Indicative Proposal, in the absence of a superior proposal and subject to an independent expert concluding that the Indicative Proposal is in the best interests of shareholders
  • Agreeing a Demerger Scheme Implementation Deed
  • Agreement of mutual facilitation arrangements to govern the implementation of the Indicative Proposal
  • Deal protection mechanisms, including exclusivity arrangements, no-shop, no-talk, matching rights and break fee arrangements
  • Other terms, including no material adverse change (to Fairfax or financial markets), no Fairfax distributions

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