Can The Fairfax Family Empire Strike Back?
The Age
Saturday July 6, 2002
Brothers look to break into the A list. Brian Robins reports.
The quiet death last month of moves for competition changes in media has given John Brehmer Fairfax and his brother Tim vital breathing space in their jockeying to break into the top tier of the industry.
It is easily overlooked, but out of the ill-fated bid by young Warwick Fairfax for media group John Fairfax Holdings in the late 1980s, his Sydney-based cousins, John B. and Tim Fairfax, have carved out a sizeable media empire.
Since selling their branch of the family's 17 per cent stake in The Age's publisher John Fairfax Holdings in 1987, they have turned a $67 million investment in unwanted media assets into gems worth an estimated $600 million. In the process, they have caused increasing pain for big-city competitors.
John B.Fairfax may be weary of being asked whether his side of the family is interested in seeking control of John Fairfax Holdings, but he doesn't deny that he is an ``opportunistic" investor.
``It is a very different company to what it was then," he says. ``Having said that, we are opportunistic. There is always the opportunity to do something, provided we thought it had the appropriate potential. We wouldn't close the door to it."
The spirit may be willing, but more bulk is needed for a serious tilt for as much as 25 per cent of John Fairfax, which would bring with it a large element of control. Whether the stalling of changes to media control legislation give him the breathing space to bulk up is open to conjecture.
John B. and Tim Fairfax walked away from the upheaval at the family's media empire with half of the capital of each of Rural Press and Courier Newspapers and a pile of cash.
Some of the cash was put into property and a small amount into a listed company, Cambooya Investments.
Cambooya went public in 1992, raising $30 million, with John B. and Tim Fairfax putting up a quarter. Last year, Cambooya was merged into another listed investment company Milton Corp giving them a 3.3 per cent block of the capital in the enlarged group worth around $25 million cash ready to go if the need arose.
More important, in terms of a future grand plan, was an attempt to take public Courier Newspapers, which has morphed into the largest privately held publisher and printer in the country, Independent Print Media Group. Owned equally by John B. Fairfax and the Hannan family, IPMG last year sought to merge with troubled magazine and printing group PMP, in a deal that valued IPMG at $630 million.
That merger was aimed at giving the Fairfax brothers access to a market for their IPMG stake, giving them a valuation, plus the chance to bail out as part of a speculated manoeuvre to bulk up to make a tilt at the family's lost heirloom, John Fairfax Holdings.
The competition czar, Australian Consumer and Competition Commission (ACCC), blocked the IPMG-PMP merger, effectively killing any prospect of a Fairfax brothers' play for John Fairfax Holdings in the short term. The brothers' ability to grow their media assets more aggressively has been hobbled by a lack of access to the public markets.
. The Rural Press arm of the family's interests has expanded steadily since John B. and Tim bought control, with a steady flow of domestic acquisitions and a push into the US with mixed results. It built itself a sizeable radio network, before cashing out in 1998.
Then there was the move into VisionStream, which operates TV screens at railway stations. Poor technology and a clumsy roll-out resulted in losses of $11 million, with the asset sold across to POS Media and Rural Press taking a 15 per cent stake.
Rural Press may have the higher profile, but Courier Newspapers, the free newspaper publishing arm of IPMG, is inflicting the most pain on the newspaper giants John Fairfax Holdings and News Corp.
It has won part of the control of Sydney's prime property advertising market, delivering the publisher of surburban giveaways a cascading cashflow. Next it targeted display employment advertising in the CBD market with free titles Nine To Five and City Weekly.
John Fairfax Holdings has long profited from its ``rivers of gold" as Rupert Murdoch once called the flow of classified advertising, but Courier Newspapers and most notably its flagship, the Wentworth Courier, has won from the property advertising surge.
Courier Newspapers has inflicted pain on News Corp's Glebe Weekly with its Inner Western Suburbs Courier as well as on News's North Shore Times and Mosman Daily via the Sydney Weekly, a glossy giveaway clone of the Wentworth Courier.
The origin of the recent success of Courier Newspapers is due to Eric Beecher, whose Text Media established the Sydney Weekly in 1993, before selling it to IPMG. This model has been central to IPMG's success.
Roger Colman, analyst with CCZ Equities, argues that IPMG's free titles now cover most of the AB socioeconomic income areas of Sydney, outside of the northern beaches area and St George.
In Sydney, CCZ Equities puts the split between IPMG and John Fairfax Holdings at 80/90:20/10.
Last year, when IPMG sought to merge with PMP, IPMG was valued at $250 million. Like many privately owned printing groups, IPMG is burdened with heavy debt, reflecting the high cost of updating equipment.
Rural Press has emerged as a leading second-tier media group with agricultural, rural and contract printing assets. By itself, it is probably not large enough to absorb IPMG and generate significant synergies, especially given the debt load IPMG is believed to be carrying.
The Fairfax brothers paid around $20 million for the John Fairfax Holdings half-interest in Rural Press, a stake now worth nearly $250 million on the company's share price alone. By some estimates, they are as little as $200-300 million short of being able to parlay their media assets half of Rural Press and half of IPMG into a key block of stock in John Fairfax.
The prime rival for any interest John B. Fairfax has in the family's heirloom is the O'Reilly family's APN, which last year paid $1.2 billion for New Zealand media company Wilson and Horton.
For the Fairfax brothers, despite the extraordinary success of Rural Press in vacuuming up an array of regional publications in the past decade, its growth options are constrained.
Primary industry is growing at about half the rate of the broader economy and the recent surge in most commodity prices is being reversed, with the agricultural commodity cycle past its peak.
The stronger Australian dollar, too, has taken the gloss off many commodity prices. At the same time, the population drift to the coast leaves Rural Press exposed, as most of its rural and provincial newspapers are west of the Great Divide.
And, it is clear that growth opportunities remain limited. The largest recent purchase was the $160 million buy of The Canberra Times newspaper from Kerry Stokes in 1998.
To broaden its media mix, in private Rural Press has pointed to its interest in moving into television. A merger with one of the regional operators such as privately held WIN 4, owned by former Paramount Television executive Bruce Gordon, holds clear interest.
WIN 4 bobbed up along with Reg Grundy's RG Radio and John B.Fairfax's Rural Press in arguing the Federal government should ease geographical limits on cross-media ownership in the recent planned overhaul of media legislation which has been buried. Any change along those lines would have improved merger options for Rural Press.
``Through both the IPMG investment, and over the years, particular through the Rural Press investment, we've done well," says John B. Fairfax. ``We're not averse to sailing on the same course, so to speak.
``I think we do have a little bit of wind in our sails, and there are still opportunities out there, through Rural Press.
``Similarly, it may not be obvious, but you never know what is around the corner."
As for young Warwick, who lost the plot with an ill-judged play for control of John Fairfax Holdings, he works for an air navigation equipment company in the US. The father of three children, he is said to be ``quite the family man".
© 2002 The Age