Fast sale of NZ assets an option in Fairfax bid

There is an even chance of Fairfax New Zealand being bought by private equity, financial analyst Morningstar has suggested.

United States private equity company TPG Capital, which has US$75 billion under management, and Canada’s Ontario Teachers’ Pension Plan Board proposed making an A$2.76 billion (NZ$3B) bid for Fairfax Media (Fairfax NZ’S parent company) on Monday.

TPG’S past investments have included Continental Airlines, Burger King, disk drive company Seagate Technology and financial services firm Sungard.

Britain’s Telegraph reported last year that TPG typically held on to investments for at least five years.

But Morningstar financial analyst Brian Han indicated that if the Fairfax deal was agreed, TPG and the pension fund might quickly on-sell Fairfax NZ and some of Fairfax’s other assets in Australia that they had originally intended to pass over.

Fairfax NZ’S publications include Stuff, the Sunday Startimes, the Dominion Post and The Press.

TPG and the pension fund originally planned a A$2.2 billion bid for Fairfax’s Domain real estate business in Australia and its major Australian newspapers.

That offer would have omitted Fairfax NZ, Fairfax’s Australian community newspapers, its 55 per cent stake in Macquarie Media radio and its half stake in Australian internet television service Stan.

The revised indicative offer for the whole of Fairfax meant TPG and the pension fund, had ‘‘effectively taken on the on-selling risk of assets [they have] no interest in keeping’’, Han said in a research note.

The revised terms were much better than the original ones, he said.

The potential relaxation of media ownership laws in Australia may have emboldened the TPG consortium to think there would be buyers for those ‘‘unwanted’’ assets, he said.

‘‘On the other hand, the possible change in the regulatory landscape also presents Fairfax with options, either as a target for another suitor or to turn itself into an acquirer,’’ he added.

Morningstar valued Fairfax shares at A$1, based on an even chance that TPG’S proposal would turn into a binding A$1.20-a-share offer, and a similar chance the proposal would fail and that Fairfax shares would drop back to their ’’intrinsic valuation’’ of A75c.

Fairfax shares were trading up 2 per cent at A$1.16 yesterday afternoon.

UBS indicated in a research note that TPG’S bid might be underpriced by A20c per share, based on a more bullish assumption about Domain’s worth.

It put a A$1.20 one-year price target on Fairfax shares. Although there would be little upside for Fairfax’s share price in the short term if the private equity proposal fell over, its shareholders might be prepared to take a longer-term view, it said.

One question they should be asking was why TPG saw value at A$1.20 a share, UBS said.

Fairfax has said it is reviewing the revised buy-out proposal, while noting it is not certain it would turn into a firm offer.

But in the meantime it is progressing its own plan to spin-off its most valuable asset, Domain, into a separate listed business, in which Fairfax would retain about a 70 per cent stake.

Australian analyst Roger Colman, head of research firm CCZ Equities, said on Monday that he believed the $3b proposed bid for Fairfax was ‘‘pretty good under the circumstances’’.

TPG and the pension fund might quickly on-sell Fairfax NZ. Morningstar analyst Brian Han