According to broking and investment bank reports the proposed Fairfax-Rural press deal includes a “poison pill” type clause that effectively prevents any shareholders of Fairfax in particular from clocking the bid by bidding for Fairfax alone.

There is apparently a “bound to proceed” clause in the merger agreement between the two companies that effectively means any bid for Fairfax, has to include Rural Press. In effect the clause prevents Fairfax from abandoning Rural Press due to shareholder pressure.

It is similar to an agreement between Suncorp and Promina which effectively prevents any bid for Suncorp alone.

In the case of Fairfax and Rural Press the total value of any combined bid would have to reflect the $9 billion enterprise value placed on them by the proposed merger.

Fairfax shareholders are not voting; Rural Press shareholders are. The Fairfax family own around 53% of Rural Press, so the deal has little chance of being blocked at the scheme of arrangement meetings.

So talk of it being fattened up for a predator is just talk according to Goldman Sachs JB Were who put a low probability on any counter offer.

Rupert Murdoch and Kerry Stokes have unwittingly helped the Fairfax board consummate this long-hoped-for marriage by driving the Fairfax share price above $5. At that level it makes financial sense, even if it’s a bit strained on some of the cost savings.

Rupert Murdoch has 7.3% of Fairfax; Seven around three per cent. They will be diluted by between 30% and 40% depending on the number of shares to be issued and how many shareholders in RUP take the higher shares and cash offer.

If they want to block it they have to buy lots of Fairfax shares over the next month to build such a stake that they can force the board to change: but change what? The merger deal has been signed and is “bound to proceed”.

Peter Fray

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