Fairfax bids for papers

By SIMON HENDERY

Media heavyweight Independent Newspapers Ltd could become a company with just one newspaper ... and a large stake in Sky TV.

INL executives will be locked in talks this weekend with their counterparts at Australian publisher John Fairfax Holdings, fleshing out the details of a deal to sell INL's publishing interests to Fairfax.

Both companies' shares were suspended yesterday pending the outcome of the discussions.

In a notice to the Stock Exchange, INL said it expected to make an announcement before the market opened on Tuesday, when trading in its shares is due to resume.

Neither company would comment further yesterday, but in a memo to INL staff, chief executive Peter Wylie said Fairfax had indicated an interest in buying the company's newspapers, magazines and magazine distributor Gordon & Gotch.

The proposal excluded Sky Television, of which INL owns 66 per cent, and Victorian tabloid the Geelong Advertiser.

Wylie said INL's major shareholders, Rupert Murdoch's News Corp (45 per cent), the Todd family (15 per cent) and Telecom (9 per cent) were not seeking to leave the publishing business.

"This development is a result of an approach from Fairfax. An approach from Fairfax was rejected last year."

If a deal is struck, it will need to be approved by INL shareholders.

INL's publishing business is estimated to be worth about $600 million. The company as a whole has a market value of $1.4 billion.

Its stable includes nine New Zealand daily newspapers including Wellington's Dominion Post and the Christchurch Press, the country's two Sunday newspapers, magazines including TV Guide and New Zealand House, and the Stuff website.

Fairfax's mastheads include the Sydney Morning Herald, the Melbourne Age and the Australian Financial Review.

The share price of INL's only other significant asset, Sky TV, rocketed yesterday as investors gambled that the publishing selloff would be followed by a full takeover bid for the pay TV network. Shares closed up 27c, or 7 per cent, at $3.95.

It remains to be seen whether Murdoch's News Corp would go to the expense of mounting a full takeover, given that the non-INL stake in the business is valued at more than $500 million.

But Murdoch is very enthusiastic about satellite television, having this week added a chunk to his expanding global television empire through his purchase of DirecTV in the US for US$6.6 billion ($12.2 billion).

Also under his wing are Britain's BSkyB, Star in Asia and the Middle East, Foxtel in Australia, Sky Brasil and Sky Mexico.

INL shareholder Telecom is likely to be supportive of a shift by the company away from print media. As well as its 9 per cent stake in INL, Telecom owns 12 per cent of Sky TV.

If Fairfax does buy INL's publishing assets, it would effectively stonewall, on competition grounds, any future bid at Fairfax by the owner of this country's other major newspaper group, Sir Anthony O'Reilly.

Sir Anthony's Dublin-based Independent News & Media owns 45 per cent of Sydney's APN News & Media, which owns Wilson & Horton, publishers of a stable of daily and community papers including the Herald.

Sir Anthony's previous interest in Fairfax has been stymied by Australia's media foreign ownership restrictions, which the Government is now considering relaxing.

Some analysts yesterday expressed surprise at Fairfax's interest in INL's mature publishing business, which they saidhad only limited scope for growth.

"There doesn't seem to be any logic as to why Fairfax would want INL," Saffron Capital head Bruce McKay toldNZPA.

"They buy half the newspaper market, what can they do then?

"I can't see anything that stands out and says, 'INL's a fantastic buy and newspaper companies all over the world should be falling all over themselves'," McKay said.

Forsyth Barr head of research Rob Mercer said the global decline of media shares in the past 18 months was the spur for the Fairfax approach.

"There's value here, it's a good time for the corporates to look at driving value through sector rationalisation," he told Reuters.

"It's a very mature business but it's full of regional monopolies and it's very difficult to compete in those markets ... so they are good businesses, good assets."

But McKay was cynical about Fairfax's ability to extract a bargain from a mogul such as Murdoch.

"Look at Air NZ and never be a buyer of a News Corp asset," he said, referring to the airline's ill-fated purchase of News Corp's share in failed Australian carrier Ansett.

"They know how to extract fairly good prices."