It shouldn’t be too hard for Fairfax Media’s board to cut its dividend, boost cashflow, inflate the share price and get rid of all that pesky sneering about the decision to make David Kirk walk the plank.

The company is paying 20 cents a share at the moment; earnings per share in 2008 were just over 24 cents a share and it had cashflow of around 27 cents a share. Fairfax paid out around $302 million in dividends, so a 50% chop to 10 cents a share would save $151 million, which would allow it to pay debt more quickly.

In considering how far to cut, Fairfax could do worse than look at the experience of the Grey Lady, The New York Times.

Its share price is up 24% from when it cut its quarterly payout by 74% last month. The shares finished at $US7.64 on Friday: they were at $5.34 the day the dividend was cut to 6 US cents a share per quarter from 23 US cents on November 21.

(A 74% cut for Fairfax would see over $220 million saved annually for as long as the cut remained in force).

The move is believed to have boosted free cash flow by an annual $US100 million, which the company said it was taking a $US50 million hit for the net cost of closing a distribution business in New York which was losing $US30 million a year.

Its latest quarterly filing said the New York Times Company only had $US46 million in cash in the bank at the end of the quarter. The company says it is working with creditors to “manage” its debt obligations, but it has yet to explain how it plans to come up with the $US400 million it needs to find in May to fix up a debt payment. It has around $US1.1 (around $A1.5 billion) billion in total debt, less than the $A2.5 billion Fairfax has.

The dividend was cut on all classes of shares, including those of the controlling Ochs-Sulzberger families. They own a special class of shares that give them more control over the company than non-family shareholders. (Like News Corporation and Rupert Murdoch).

But the decision of the size of the Fairfax dividend cut will be left to the board. The big decision will be to name noted cost-cutter and anti-journalist Brian McCarthy as full time CEO. With that in mind, here’s something for Brian to look at:

UK media reports on the weekend said a Glasgow paper group had made all its 250 journalists and publishing staff redundant and invited them to reapply for their jobs.

The Herald and Times Group, which publishes The Herald, The Sunday Herald and Evening Times, is owned by Newsquest, the UK arm of US publisher Gannett, The Financial Times reported.

Management said they expected about 220 staff would be rehired if they agreed to new terms and conditions. The National Union of Journalists described the move as a “brutal attempt at forcing changes.

The Scottish newspapers have suffered a sharp downturn in sales and advertising, though they remain profitable. The Herald and Times Group said it would merge certain newspaper staffs under Donald Martin, its new editor-in-chief, to increase efficiency and make full use of new production technology.

This could be a wonderful way for Mr McCarthy to start his reign at Fairfax and the foolish board could swallow this idea.

One final thing: after the Rural Press merger, all the various newspaper groups in Australia and New Zealand reported to Brian McCarthy, but the Fairfax business group headed by Michael Gill reported to David Kirk. That will change when McCarthy is made CEO. That will see changes in the business group. Glen Burge, Editor of The Australian Financial Review, is one to keep an eye on.

Peter Fray

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