Well, that didn’t last long did it. The enthusiasm for the Nine takeover of Fairfax Media ran out of puff on Friday, despite the ASX 200 jumping 55 points or 0.9% to a new ten year high of 63000. Thursday’s modest enthusiasm in the wake of the takeover announcement vanished as quickly as it came as punters, hedge funds and others realised that no one was really interested in a deal involving two members of a legacy sector that is heading towards a cliff. With the ASX expected to fall today after a poor session on Wall Street on Friday, the value of the Fairfax takeover will fall.
Based on Friday’s closing price for Nine, its offer price for Fairfax is worth 81.9 cents (against a nominal $1 a share when announced) while Fairfax shares ended at 80.5 cents. That means no one thinks there will be a counter offer and reckons there’s only money to be lost, not made. There was nothing in the thousands of words in the Fairfax and News Corp papers on the weekend that revealed any hidden value in the transaction — it is defensive and nothing more in the case of Nine and throwing in the towel by the Fairfax board.
Fairfax shares fell 3.6% on Friday and the shares ended flat on the week. Nine shares continued their slide of Thursday, losing another 3.1% and closed at $2.19, a level not seen since last February and down 13% for the week. Domain shares ended flat on Friday on $3.35 and were up 8% for the week and the winner. The value of the Nine offer was $1.85 billion at the close on Friday, down from the nominal $2.3 billion in Thursday’s announcement – that’s $450 million gone in two days in a loss typical of Australian media deals. Nine is already worried — chairman Peter Costello descended from his ivory tower to defend the idea to Fairfax Media.
Kerry Stokes’ Seven West Media, the week’s orphan, fell 3.9% to 85.5 cents for a loss on the week of 3.9% (ie all coming on Friday). It hit a high of 92.2 cents in Thursday’s trading, so its loss from that peak was 12% in just over 24 hours, a real loss of investor appetite.
We can now expect big Fairfax shareholders to start agitating for a higher offer price and Nine shareholders questioning why the deal is happening, perhaps led by Bruce Gordon who controls a regional TV group. Gordon owns just under 15% of Nine and is reported to have a further position sufficient to take his stake (via cash settled swaps) to a touch under 20%. Under a scheme of arrangement, insiders — board members and related parties can’t vote. Fairfax though has an open share register, so Gordon would need support from other holders, such to defeat the move a deal can be defeated.
More than 25% of the shares have to be voted against the deal to defeat it. Gordon would have to convert his swaps to shares to reach 19.9% to maximise his no vote, if he was opposed. But Gordon also controls 11% of Prime Media Group, Seven Network’s regional affiliate which might complicate his ability to control the future of Nine. Gordon’s 14.95% shareholding in Nine will be substantially diluted by the 72% expansion of the number of shares Nine will have on issue (from 871 million now to 1.5 billion).
Gordon has been a poor player in media deals — his failure to grab control of Ten last year saw the stricken network bought by CBS of the US — is the most recent example of his lack of ability to complete a transaction.