Rinehart lifts Fairfax stake to 18.7 percent

Monday 18th June 2012

Australian mining magnate Gina Rinehart lifted her stake in Fairfax Media to 18.7 percent, strengthening her case for a board seat as the media company cuts back on printing and puts content behind a digital paywall to counter sliding advertising revenue.

Last week, Rinehart's Hancock Prospecting spent A$71.9 million at 60 Australian cents a share building a holding in Fairfax, according to substantial shareholder notice lodged with the ASX.

Reinhart, who has been critical of management and board, missed out on a directorship last month when former Ernst & Young Australia boss James Millar was appointed, despite being the company's biggest shareholder.

Chairman Roger Corbett has reportedly been reluctant to offer Rinehart a seat over her refusal to keep her nose out of the company's editorial policy.

Fairfax shares climbed 7.4 percent to near a three-week high 65 Australian cents after unveiling a plan to cut costs by an annual A$235 million over the next three years by laying off 1,900 staff, closing two printing facilities and integrating its newsrooms to work across platforms and regions.

Last week, it cut full-year earnings guidance by 18 percent in what's shaping up to be its worst operating performance since 2008. The media company expects earnings before interest, tax, depreciation and amortisation of about A$500 million in the 12 months ended June 30, down from A$607.4 million a year earlier

Fairfax said impairment testing for its mastheads will be completed as part of its end of year audit. Since 2010 the media company has taken charges of more than A$1 billion against its mastheads and goodwill.

The company sold down its stake in online auction site Trade Me to raise A$160 million to fund the A$248 million cost of restructuring, and reduce net debt to A$80 million

Rob Mercer, head of research at Forsyth Barr, said Fairfax's restructuring is a step towards protecting the underlying business, which has "relatively high gearing" and needs to strengthen its balance sheet.

The stock is rated an average 'hold' by a consensus of 13 analysts compiled by Reuters, with a median target price of 73 Australian cents. It’s A$1.42 billion market capitalisation is about 44 percent of the A$2.5 billion consensus enterprise value.

BusinessDesk.co.nz

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