As Fairfax Media announced it’s slashing 35% of its New Zealand newspapers in today’s interim financial report, the company made it clear it is open to a deal with its rival legacy media company, News Corp. CEO Greg Hywood revealed the bad news for the Kiwis while declaring that any deal “will be in the best interests of our shareholders”. That however is what previous Fairfax managers asserted whenever they did a dud deal, such as the loss-making takeover of Rural Press. But the bottom line from today’s report is that the board is open to overtures, with perhaps Fairfax being the mover rather than the receiver, as it was last year with the nibbles from bottom-feeding US private equity sharks.
Hywood left the very strong impression that Fairfax is open to offers from prospective dance partners, saying that the company’s “balance sheet is strong, with a net cash position for Fairfax’s 100%-owned entities”.
“Any decisions we take will be in the best interests of our shareholders,” Hywood said.
For Fairfax’s board and management you can understand the excitement of another deal after de-merging then selling Domain to shareholders last year. The December half was boring in comparison with weakening (newspaper) revenue, weakening print ads, some progress on digital subscriptions, indifferent digital revenue growth and the prospect of more of the same over the rest of 2017-18.
Stuff.co.nz, the renamed NZ operations of Fairfax, remains in limbo with another appeal underway against the denial of a merger with rival publisher NZME. The first appeal was dismissed by New Zealand’s highest court in late December. Today’s announcement from Fairfax though contained bad news for NZ and its shrinking newspaper base — Stuff is taking (or rather Sydney HQ is ordering) a rather large axe to its papers as Hywood explained in today’s statement:
“We … are announcing today a plan to exit around 35% of our NZ print publications through sale or closure. The rationalisation of these smaller community titles and free inserts will deliver additional EBITDA contribution over a full year — and bring forward the time when increases in digital revenue outweigh declines in print.”
Seeing the rejection of the NZME deal was to give Fairfax around $53 million in cash and a 42% stake in the merged company (which could have been sold to raise more money), the Kiwi newspapers face some heavy cuts to make up for the loss of those gains.
But the most intriguing part of the announcement (apart from the hacking across the Tasman) was the increasing cooperation with News Corp. Hywood noted:
We have progressed our recent positive discussions with News Corp Australia to seek industry-wide efficiencies in printing and distribution. We have had successful collaborations around shared trucking and printing titles for News in Queensland. Building on this collaboration we have jointly appointed advisers to pursue deeper strategic opportunities.
Half-year revenue of $877 million, is down 3.9% from the prior corresponding period. Excluding one off items, earnings before interest, tax, depreciation and amortisation (EBITDA) was $146.9 million, up 1.3%. Earnings before interest and tax (EBIT) of $119.8 million were down 5.5%, and Net profit after tax of $76.3 million was down 9.9%.
But costs fell 4% thanks to cuts in staff and other moves. “This result reflects the increase in minority interests associated with the separation of Domain from 22 November 2017 and the improved Macquarie Media results,” Hywood said.