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Will Fairfax split its business?

Fairfax Media (ASX:FXJ) could be about to follow the lead of News Corp (ASX:NNC) and split itself into digital and ‘old media’ assets.

Speculation has emerged in Fairfax’s own newspaper, the Australian Financial Review (AFR), that the company was looking to sell of its Stayz business, which provides online holiday rentals. While Fairfax has denied that it is looking to sell the business, the company’s recent decision to split out its Domain real estate advertising business, could be a sign that the company is open to selling off some of its digital assets.

Fairfax sold its share in online shopping site, Trade Me Group (ASX:TME) in December 2012, with the proceeds used to pay off some its debt, and earlier this week agreed to sell the InvestSMART online financial services business.

The AFR has suggested that US listed HomeAway, capitalised at around $3 billion and growing its presence in Australia, may be one of the companies that made an approach to Fairfax to sell Stayz.

JPMorgan analysts have valued Stayz at $140 million, based on earnings before interest, tax, depreciation and amortisation (EBITDA) of around $14 million.

Perhaps another company that may be interested is Wotif.com Holdings (ASX:WTF). Alongside its traditional accommodation offering, Wotif has not only expanded into selling flights, but also holiday rentals – as a direct competitor to Stayz. After reporting falling earnings for the first half of this financial year, Wotif may consider buying Stayz to boost its holiday rental market share and add more diversity to its business.

Fairfax, for its part has acknowledged that at some time in the future, its papers will be totally digital, but will continue to print and distribute newspapers, despite accelerating falls in circulation levels. The company may decide to let that side of its business run off, while cutting costs to make it as cost-effective as possible.

Fairfax is expected to report its full year results next Thursday, and it will be interesting to see how its new digital paywalls are going. Fairfax currently offers users limited access to free articles each month, before they are forced to sign up.

Foolish takeaway

With thousands of websites, hundreds of newspapers as well as radio stations in its portfolio of assets, Fairfax may look to simply the business and realise value for shareholders. Morgan Stanley analysts have estimated that the company could achieve 80 cents a share if broken up – well above today’s price of 55 cents.

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Motley Fool writer/analyst Mike King owns shares in Fairfax Media.

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