Journalists love nothing more than speculating about the future of media companies, so Gina Rinehart has created an avalanche of commentary with her high-profile raid on Fairfax Media. We’ve had everything from Paul Barry saying she will almost certainly score a board seat to Michael West speculating she’ll swap her stock for the newspaper division and Alan Kohler saying she’ll end up frustrated and out of pocket.
Personally, I prefer the theory that Rinehart was so outraged by Jane Cadzow’s extremely tough Good Weekend cover story on January 21 that she’s out for revenge, not unlike the way Kerry Packer stalked Fairfax for years courtesy of the Goanna saga.
Having dropped more than $100 million on her previous $300 million bet on stakes in Fairfax and Network Ten, it is also significant that she has just inked a lucrative deal with South Korean steel giant Posco, which paid $1.5 billion for an additional 11.25% stake in Rinehart’s Roy Hill iron ore project south of Port Hedland
However, it is wrong to assume this constitutes cash in Rinehart’s pocket because Roy Hill is expected to cost $7 billion to develop with first production not scheduled until 2014. The valuation may also be inflated for tax reasons, with Posco clawing back value through a discounted supply agreement. I very much doubt Rinehart has the capacity or appetite to risk ploughing $4 billion of real cash into a full takeover of Fairfax.
But without full control, where does she go? Any Fairfax director, shareholder or journalist who read Gadzow’s Good Weekend profile would be horrified at the prospect Rinehart could influence the venerable publishing house as a director.
While conflicts of interest seemingly didn’t matter when the four billionaires — James Packer, Lachlan Murdoch (post-inheritance), Gina Rinehart and Bruce Gordon — swooped on Network Ten, a Fairfax board seat will be an entirely different proposition.
Once Ten’s executive chairman Nick Falloon was rolled and his non-executive successor, Brian Long, agreed that Packer and Murdoch could have two boards with their combined 20% stake, it was difficult to resist representation arguments from Rinehart and Gordon.
Incredibly, Gordon was allowed to appoint a lawyer to represent him even though he owns Channel Nine in Adelaide and Perth, which directly competes against Ten. Talk about being blind to conflict of interest.
Fairfax is in a different place after suffering the embarrassment of having ACMA force David Evans off its board in 2009 due to conflicts of interest and regulatory breaches from his status as a director of Village Roadshow, back when it still controlled Austereo.
Even former Fairfax chairman Ron Walker, who has navigated through numerous personal conflicts of interest over his career, saw red when deputy chairman Mark Burrows thought it was fine to advise Lachlan Murdoch on his proposed 2008 takeover of Consolidated Media Holdings. He resigned a few days later acknowledging the perception problems.
Given all this history, current Fairfax chairman Roger Corbett has the easy out by pointing to the obvious conflict of interest that the Ten directorship creates for Rinehart if she does indeed aspire to join the board.
A more likely scenario would be Rinehart attempting to engineer a merger between Ten and Fairfax in which she emerges as the largest shareholder with 20% and a board seat. But that would also be messy.
Another feasible alternative would be for Rinehart to trade her Fairfax stake for the company’s radio assets which can be easily separated from the newspaper and digital divisions and were recently on the market until 2GB owner John Singleton failed to come up with a realistic offer, despite rumours he tried to put together a joint bid with Rinehart.
Having developed close friendships with numerous conservative MPs, it is clear that Rinehart is pushing hard to help remove the Gillard government and receive greater regulatory, tax and infrastructure support for her West Australian resources projects.
The unions will fight this one to the death given her support for importing cheap foreign guest workers to build her projects.
As for whether the Fairfax raid will work, I think she’s made a big mistake by putting a giant target on her back. And with three of her children litigating to remove her from the family trust, now is not the time to be be saying, “look at me”.
With buffoons such as Clive Palmer, Twiggy Forrest and Rinehart now worth an estimated $40 billion and all throwing their eccentric weight around, Kevin Rudd could mount a very strong case for a return to the Lodge and a far more aggressive mining tax proposal than Gillard’s pathetic compromise.
After all, if Labor really wants to return to surplus next year and help fund pet projects such as wage rises for community workers, the mining industry could comfortably contribute at least $10 billion a year more in tax while still delivering for its largely foreign and billionaire owners.
CORRECTION: An original version of this story stated the Good Weekend profile on Gina Rinehart was written by Janet Hawley. It was in fact written by Jane Cadzow.