The Australian is running hard on the line being pushed by
media buyer Harold Mitchell that his London-based mate Doug Flynn has
been approached by Macquarie Bank to help take over the struggling John
Fairfax empire.

Flynn sort-of denied the move in The Australian,
although this only extended to professing commitment to his current job
running Rentokil, not repudiating Mitchell’s claims about an approach
from Macquarie. The market clearly believes it is credible as Fairfax shares shot-up
another 28c to $4.20 this morning, although it was at almost $4.70 four
months ago.

It should come as no surprise that Macquarie Bank and its offshoot
Macquarie Media is looking at Fairfax because the Millionaire Factory
has been scouring the world for assets and going on a spending spree,
which last week included splurging $5.1 billion on an Indiana tollroad in the US.

However, there’s a very big difference between running the ruler
and
launching a bid and I very much doubt they’ll progress any further on
Fairfax. Shares in Macquarie Media recovered 2c to $2.72 in a strong
market this
morning but it remains at a small discount to its $2.75 float price
last November, which was at the bottom of the range pushed by the bank
at the time.

This means Macquarie Media hasn’t exactly set the market alight and it is only
capitalised at $540 million, compared with $4 billion for Fairfax and
$5.1 billion when you include debt, as you always should when valuing a
takeover.

Macquarie Airports learnt the hard way about the dangers of pursuing
a large acquisition before shareholders have coughed up all the dough
when it paid 480m euros for 44% of Rome Airport in July 2002 and the share price was
routed to just 80c. All that gouging has lifted it to $3.15 today.

Macquarie Media shareholders owe their second $2-a-share instalment, a
total of $400 million, in November this year and they’ve just gone
hurtling into debt by committing $411 million in equity to the $1.2
billion bid for Taiwan Broadband Communications which was unveiled
on 19 December. In other words, it has no capacity to fund anything
major at the moment. Let alone a $5 billion tilt for Fairfax.

Macquarie Bank was the 40% minority bid partner for Macquarie Media in
Taiwan which gives some insight into how a tilt at Fairfax could be
structured. However, Fairfax is so big that Macquarie Media could only
buy it with scrip and would need board approval, something considered
highly unlikely.

That said, Fairfax’s board and management are on the nose with the
all-important institutional shareholders and the stock has plunged
almost 15% in a rising market since the new team of chairman Ron Walker
and CEO David Kirk took over.

Buy why would Macquarie want to buy a declining, low-growth business
like Fairfax? Besides, any takeover would also cause big problems on
editorial independence because of the sheer scale and controversy of
Macquarie’s burgeoning empire and Fairfax’s treasured place as the only
genuinely independent quality commercial media outlet. All up, it
simply wouldn’t be worth the grief for Macquarie – let alone the $5
billion-plus required.

It just sounds like the embittered Doug Flynn, a former Murdoch
head-kicker, exacting some revenge on Fairfax by disseminating takeover
tittle tattle through his media buying mate.

Peter Fray

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