In a wholesale shakeup at The Australian Financial Review, News Limited defector Brett Clegg has been formally anointed as incoming CEO of the ailing Financial Review Group less than a year after leaving Fairfax for The Australian. And the paper’s editor, Glenn Burge, has been offered a job elsewhere in the Fairfax empire.

Outgoing CEO Michael Gill, who starred in a last-ditch interview with Mumbrella last week, perhaps to save his job, has fallen on his sword and resigned. It follows reports earlier this year that Clegg was offered the gig but initially knocked it back, choosing instead to take up a gig as “deputy CEO” of The Australian on March 1.

Clegg, renowned for his skills as an ad revenue “rainmaker” in addition to his journalistic gravitas, was deputy editor at The Fin before being poached by The Australian‘s wily editor-in-chief Chris Mitchell last May. He toiled for just 9 months at Holt Street — first as deputy business editor and then for three weeks as 2IC on the paper’s corporate side after a preliminary Pyrmont offer was matched by News. His then had his arm twisted again by new Fairfax chief Greg Hywood.

Roger Johnstone will act temporarily in the CEO’s role before Clegg’s triumphant homecoming.

Clegg might be expected to use the extensive commercial knowledge of News Limited’s operations in his new role on the other side of the Sydney CBD. His wife, leading corporate scribe Annabel Hepworth, will remain for now at News HQ.

AFR staff were busy taking bets this morning on who would replace Burge as editor, with Paul Bailey currently in the hotseat before a permanent successor is fingered. Insiders say Sean Aylmer, appointed deputy managing editor of the AFR last May after serving as BRW editor-in-chief, is firming for the big gig on the day-to-day coalface.

There are also suggestions that Burge will ignore Fairfax’s offer of another position assisting Hywood in an “important role” at the ASX-listed firm. One source told Crikey that if Burge “has any dignity he would resign altogether.”

In an email to Fairfax staff this morning, Hywood said that Clegg’s ascension to the top of the FRG group was a “long held dream”. In a cheeky aside, he also wrote that Clegg has “publicly acknowledged the support he received during his time at News Limited from John Hartigan, Richard Freudenstein and Chris Mitchell.” Some of that “support” will no doubt be marshalled by Clegg at the helm of The Oz‘s most bitter daily rival. Australian editor-in-chief Chris Mitchell did not respond to Crikey‘s queries over the potential leaking of News’ valuable corporate insights this morning.

There is also speculation Clegg will try to poach back to the Fin a storied list of 10 financial scribes that left the financial daily to join The Australian. Hepworth could conceivably make a return, as could other Oz recruits Damon Kitney and Tracy Lee.

The decision to draft in Clegg occurred against a backdrop of festering tension between Gill and Hywood following the latter’s decision to leave Tourism Victoria for a plum post as a Fairfax director last October. Crikey understands that at a meeting following Hywood’s appointment, the CEO-in-waiting was miffed when Gill made no effort to greet him as he entered the room.

The chilly reception was strange given that Hywood had agitated hard for Gill to replace him at the top of The Fin when he left to become publisher and editor-in-chief of The Sydney Morning Herald in 1998.

“Greg basically got Gill that gig, and he was miffed when he got the cold shoulder last year,” a Fairfax mole said this morning.

Gill’s record atย  the group was mixed, overseeing disasters such as AFR Access and its paywalled website, but keeping revenue broadly on keel with the assistance of a steady stream of property and corporate job ads, especially in the Friday and Weekend editions. Circulation has dipped 25% since the paper’s late 90s 100,000 heyday, clocking in at just 75,000 last year. Subscribers to numbered just 6711 last month, a full decade after the paywall was erected. The Financial Review Group, which includes BRW, is said to be worth just $200 or $300 million, down from $1 billion at its apogee.

Gill has also been a persistent critic of sites such as Business Spectator, once firing off an angry email complaining about short extracts of AFR stories available on the free website.

The cleanout in The Fin‘s senior ranks is the latest move by Hywood to stamp his influence on the company. Last week, he announced veteran staffer Nic Cola would serve as the head of Fairfax’s transactional “marketplace” businesses. It follows the promotion of former digital head Jack Matthews as “Metro CEO” overseeing the print and online arms of The Age and The Sydney Morning Herald.

It is not known where Gill, a 21-year Fairfax veteran, will go next. In his fireside chat with Mumbrella‘s Tim Burrowes last week, he dismissed reports that his job was in imminent danger as “silly”, following the revelations Clegg had been offered his role just weeks before.

Fairfax shares fell 0.4% this morning, trading down 1 cent at $1.24 as our deadline approached.

Here is the full email sent to staff from Hywood, published on Crikey within minutes of its despatch to Fairfax employees.

From: Staff Notices

Sent: Monday, 21 March 2011 9:39 AM

Subject: Message to All Staff from Greg Hywood

I am pleased to announce the appointment of Brett Clegg to the role of Chief Executive Officer of the Financial Review Group following the resignation of Michael Gill.

As many of you know Brett started as a cadet with the AFR and spent nearly a decade with the paper, where he edited the Companies and Financial Services sections and rose to the position of deputy managing editor. He has also had roles with Macquarie Group and accounting firm Ernst & Young. Most recently he was in the role of Deputy Chief Executive Officer of The Australian.

Brett has the important combination of significant editorial and commercial experience. He will be a superb leader of FRG. Brett is well known for his commitment to quality independent journalism, his very significant commercial nous and a deep understanding of the digital future.

Brett Clegg has told me he is excited to be taking the role as it is the realisation of a long held dream to be leading the group. He has publicly acknowledged the support he received during his time at News Limited from John Hartigan, Richard Freudenstein and Chris Mitchell.

I would like to that Michael Gill for his contribution to Fairfax over the last 21 years. Michael has led the AFR and the entire FRG business through some of the most significant and challenging years in the history of modern media. His commitment to the AFR, BRW, the business and the other publications under his control is to be admired and respected. Michael’s career as a journalist and publisher at Fairfax has been outstanding

Roger Johnstone will be acting in the role of CEO of FRG during the period before Brett’s commencement.

I would also like to acknowledge the contribution of Glenn Burge who will also be taking another role in Fairfax Media. I have asked Glenn to give consideration to working with me in an important role within the company. Glenn has been an excellent editor of the Australian Financial Review, and Editorial Director of FRG and we look forward to harnessing his considerable skills, network in the business community and experience elsewhere in the company.

Paul Bailey will be the acting editor during the period before the announcement of the new editor.

Please join me in welcoming Brett back and in thanking Michael and Glenn.