This morning Fairfax Media Limited (ASX: FXJ) is making news as the subject of a takeover bid offering 95 cents per share cash to existing shareholders for Fairfax's flagship, Domain, Australian Financial Review, Sydney Morning Herald and The Age media and advertising businesses.
The bid is from private equity operator TPG Capital which is also offering Fairfax shareholders the opportunity to retain ownership of Fairfax's regional newspapers, New Zealand media interests, Macquarie radio assets, and the loss-making Stan online broadcasting channel. TPG Capital is valuing this group of businesses at 25c to 30c a share under the terms of its scrip-based spin-off proposal. These largely old-world media businesses face a Sisyphean task in operating profitably into the digital future and it's no surprise TPG wants nothing to do with them.
In effect TPG wants to buy the Domain asset and anything that profitably acts as a digital funnel in driving traffic towards it for a knock-down price of 95 cents per Fairfax share.
Domain is Fairfax's star cash-generating asset as the growing challenger to REA Group Limited (ASX: REA) and I would be surprised if the 95 cents per share cash offer gets given much consideration by the Fairfax board.
If it does it suggests the board has little confidence in the medium-term future of the business. Although, Fairfax's CEO just reported that revenues for its flagship media businesses were down 11% for the first 17 weeks of the second half of FY 2017 in a shocking result that prompted another round of vicious cost cutting, as the business fails to halt the migration of advertising dollars away from its SMH and The Age mastheads.
Domain hardly shot the lights out either, with revenue up just 10% despite the heavy investments and house price-driven editorial direction Fairfax's management has been applying in promoting its property platform.
This morning Fairfax shares are up 2.5% to $1.09 which suggests investors don't think much of TPG's offer either, given it's supposed to value the whole business between $1.15 to $1.20 per share. I'm not a buyer of Fairfax shares given the uncertainty around the business and because there are much better opportunities available elsewhere on the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO).
