Fairfax counts cost as staff walk

By Duncan Bridgeman

Friday 13th June 2003

John Fairfax Holdings' bold takeover bid for Independent Newspapers' New Zealand publishing assets has turned sour as INL faces potentially large redundancy costs.

Hefty payouts are expected after more than 100 INL journalists, administrative and production staff this week accepted voluntary redundancy after the change in corporate ownership.

The potential multimillion-dollar cost to INL, exposed in an employment-contract clause, comes after a law change cost Fairfax more than $100 million in tax breaks on the planned sale and lease back of its mastheads.

Fairfax this week closed off its capital-raising offer to retail investors nearly $A30 million down on the expected $A88 million planned to help fund the $NZ1.18 billion takeover.

The company said a favourable foreign exchange rate meant the balance of funding could be met within its existing $A702 million senior debt facility along with $A366 million from institutional investors.

But Australian analysts are sceptical about the deal, which they say is too expensive.

"They overpaid in the beginning and the Kiwi dollar is now depreciating [against the Australian dollar], which means the earnings stream is worth less going forward," said one media analyst who asked not to be named.

"Now they've probably got a degree of staff trouble that they haven't even thought of."

Merrill Lynch recently reduced its 2004 forecasts for Fairfax's net profit by 11.8% to $A185 million, despite favouring the INL takeover. JB Were lowered its forecast 7.5% to $A166 million. Both brokers put the downgrades down to the botched masthead deal.

After the Fairfax takeover INL will be left with about $820 million in cash and a 66% shareholding in Sky Network Television.

INL is 40% owned by Rupert Murdoch's News Ltd.

Fairfax is also under pressure to sustain its advertising revenue with continuing weakness in job advertisements across the Tasman. General advertising has been relatively buoyant but is cyclical and any weakening would bring Fairfax revenues down.

INL group general manager newspapers Peter O'Hara referred all comment on the redundancies to Fairfax, whose corporate affairs manager, Bruce Wolpe, refused any executive comment until after the takeover was complete.

Industry sources said at least four newspapers were badly affected, including INL's flagship, the Sunday Star-Times, which was yesterday understood to have lost the backbone of its highly regarded sports reporting team.

In total, five senior editorial staff are leaving the paper, which recently launched a new format promising extra content.

More than 50 staff at the Press in Christchurch have accepted the potentially lucrative windfall, although INL is understood to be negotiating with several specialist engineers at its printing and production facility. At least 16 editorial staff are leaving the paper.

Another five senior journalists have left Wellington's Dominion Post following several others who were paid out when the paper was formed last year.

The Nelson Mail is perhaps the worst affected given its small size. Up to 20 senior staff are leaving.

Advertising employees are said to be under different contracts but the technical engineering staff would be difficult to replace.

Although collective employment contracts are unaffected, the redundancy option has proved popular with long-serving staff, who stand to gain substantial payouts.

The move follows other recent redundancies at INL with the closure of Wellington's Evening Post last year. Although Fairfax has offered all staff continued employment on the same terms and conditions, it would not have expected the scale of redundancies.

Sources said employees taking redundancy would not be re-employed by Fairfax for the next three years.

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