Rural Press to merge with John Fairfax

The merger creates a media company with an enterprise value of A$9 billion and makes it harder for potential suitors to buy the Australian newspaper group.
Australian print publisher John Fairfax Holdings has announced a cash and scrip acquisition of the entire issued capital of Rural Press to create a A$9 billion ($7.08 billion) media company.

Fairfax titles include The Sydney Morning Herald, The Age, The Australian Financial Review and several specialist magazines from which the company generated revenues of $1.9 billion for the financial year ended June 30, 2006.

With Rural Press, it will add to its portfolio 170 regional titles and more than 60 agricultural publications. The combined footprint will cover Sydney, Melbourne and Canberra, giving it a significant regional and rural publishing and printing presence with over 240 local and community papers. It will also have a substantial presence in New ZealandÆs daily newspaper and other publishing markets.

Market watchers say the move will make Fairfax a more difficult target for a potential acquirer when media cross-ownership laws change in Australia next year. Fairfax has long been held up as the most obvious takeover target in the imminent shake-up of the media industry. It has already been the target of on-market raids with Rupert Murdoch buying 7.5% of its shares in October, and TV company Seven Network buying just under 5% of the company's shares on Tuesday this week (December 5).

Revenues for the merged company for 2006 on a proforma basis are estimated at $2.5 billion. The merged company will have a geographically well-diversified revenue stream with about 30% derived from Sydney and Melbourne, 44% from other Australian publishing, 21% from New Zealand publishing and the balance of 4% from online businesses.

Ronald Walker, chairman of Fairfax says: ôThis merger clearly meets our criteria of benefiting Fairfax Media shareholders by advancing the company's strategic growth and increasing shareholder value.ö

In an interesting twist, Rural Press chairman John B. Fairfax and his family will become, post merger, the largest shareholders of a company they founded then lost control of.

In its analysts' presentation, Fairfax highlighted that the deal would be EPS accretive for shareholders. Fairfax also told analysts the acquisition, including dividend and assumed debt, would cost it about A$3 billion and that it will accrue synergy benefits of at least A$35 million per annum, kicking in after 12-18 months.

Fairfax will add two Rural Press nominees to its board, taking the total board strength of the combined entity to nine directors.

The proposal offers a choice of two cash and scrip options to Rural Press ordinary and preferred shareholders. Shareholders will be entitled to 2 Fairfax shares and $3.30 in cash or 2.3 Fairfax shares and $1.80 in cash. In addition, the Rural Press board will declare a fully franked special dividend in respect of each ordinary share of 57.143 cents and 62.858 cents in respect of each preferred share. Fairfax said it would pay up to A$667 million of cash and issue at least 405 million shares to effect the merger.

Rural Press shares gained on account of Fairfax's offer of a healthy 20% premium to the prevailing market price. Fairfax shares, meanwhile, lost a little ground.

The transaction is expected to be fully completed by April 2007. John Fairfax is being advised by Lazard and Rural Press by ABN AMRO.

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