Fairfax Media – Cheapest bid to make?

Fairfax Media is becoming the cheapest bid for potential buyers who still eyeing newspaper business, Bloomberg reported.

With shares slumping already 87 percent in the past five years, the company trades at 0.3 times its book value – the lowest among media companies around the globe with market capitalisations over $1 billion, according to Bloomberg. On average, for media companies with market values of at least $1 billion, shares are priced at 4.2 times the value of their net assets.

A leading investor in the company confirmed it would consider support a break-up of the company, making Fairfax Media – Australia’s second-largest newspaper publisher – a target for private equity, the Australian reported.

Fairfax Media, owning the Sydney Morning Herald and the Australian Financial review, find it hard to get through a time when news market is flooded with new digital entrants. The company is faced with a re-evaluation of its mastheads on the balance sheet while being restructured towards digital, the Reuters reported, citing anonymous board members.

The company’s goodwill and intangibles were downgraded by Citigroup from A$ 5.25 billion in the previous year to A$ 4.98 billion ($ 4.92 billion) in the 2012 financial year, the Reuters added.

“The Sydney-based publisher, which controls New Zealand online auction site Trade Me Ltd. (TME), as well as four of Australia’s ten biggest papers and the country’s top dating site, may now be cheap enough to attract leveraged buyout firms,” Bloomberg reported, citing Platypus Asset Management Pty and Tribeca Investment Partners Pty.

“Clearly private equity would have interest in it…they’ve shown interest in a lot of things that can be broken up. The share price decline has probably been too aggressive,” said Platypus Asset Management’s Prasad Patkar, Bloomberg quoted.

Despite that the share price is still trading record low, the Australian noted.

According to the Australian, the idea of breaking up the company is crystallised in a series of stages selling the group’s assets. The initial stage is the sale of part of online auction group Trade Me, followed by the Metro division housing its most famous newspaper mastheads. A third stage would be the radio assets, which include 2UE and 3AW.

Last month, the company was caught in media coverage about its employee’s strike against outsourcing of some production roles to New Zealand, the Wall Street Journal reported. Falling circulation, a tough advertising market, and calls from the mining magnate Gina Rinehart who owns over 13 percent of Fairfax for change, contribute to the action, the WSJ analysed.

The company’s other restructuring initiative towards digital also raise doubts. “It’s very unclear if online can offset the accelerating decline in print, particularly given the strong headwinds at a macro level and a tough trading environment,” another report of the Australian quoted an anonymous source.

Image: The Australian