Fairfax fails to find successor

Investors are asking why Australian and New Zealand media giant John Fairfax Holdings cannot find a chief executive.

A year ago, Fred Hilmer handed in his resignation as head of Australia's second-biggest newspaper publisher. Today, he is still in the job as the company struggles to find a replacement.

"I can't work out why they haven't been able to find a new CEO," said John Sevior, head of equities at Perpetual Investments in Sydney, Fairfax's second-biggest investor with 66.1 million shares.

"When a CEO has flagged that he's ready to go it would help to expedite that process."

The company is also without a chief executive in New Zealand after Brian Evans shifted to Australia to become chief operating officer.

The search for a successor to Hilmer may be being stymied by speculation Sydney-based Fairfax will become a takeover target under Australian Government plans to abolish restrictions on companies owning more than one form of media in any city.

A new chief executive will also have to arrest a slowdown in advertising growth and fend off competition for real-estate and employment classifieds from internet sites.

The proposed changes to media ownership laws would allow Kerry Packer's Publishing & Broadcasting, which owns the nation's biggest television network and is the biggest magazine publisher, to bid for Fairfax, which publishes the Sydney Morning Herald and Melbourne's the Age.

"I don't think they'll find a CEO while the regulations and the strategy is in question," said Greg Fraser, a media analyst at Shaw Stockbroking in Sydney.

"Who would want to step into a business that could be pretty short-term, unless they offered a pretty attractive parachute, which the market wouldn't like?"

Fairfax missed out on its preferred candidate in February, when Doug Flynn, the Australian-born chief executive of UK advertising buyer Aegis, rejected an offer and instead accepted the top job at Rentokil Initial, the world's biggest pest control company.

Flynn, 55, told the Australian newspaper that Fairfax's hiring process was too slow. "It was inadequate. They had basically asked me to come, but it was just taking forever to conclude it," he said in a February interview.

Hilmer, 60, the former head of McKinsey & Co's Australian arm and a management professor at the University of New South Wales, started at Fairfax in November 1998 as the company's ninth chief executive in 10 years.

The stock has risen 29 per cent during his tenure, lagging a 53 per cent gain in the benchmark index.

"I was a high-risk appointment," Hilmer said in an interview last week. "It's a tough industry to get the right blend of commercial skills and understanding of the environment. If this industry had lots of people who boards had confidence in, they wouldn't have had nine CEOs before me and they wouldn't have turned to me to come from the university."

When he announced his intention to leave, Hilmer said he wasn't willing to commit to a further five-to-seven-year term to take the company to its next stage of growth.

He said he also wanted to pursue other interests that were on hold while he was chief executive.

The number of suitable candidates in Australia is limited and Fairfax may struggle to recruit from outside the country, said Don Hamson, who helps manage A$30 billion ($32 billion) at State Street Global Advisors in Sydney.

"I'm not sure if it would be attractive from an overseas perspective," Hamson said.

"You'd like to see a little bit of progress pretty soon, that's for sure."

Hilmer was paid A$1.2 million in salary in 2004, or about 33 per cent less than the £800,000 ($2.1 million) a year salary Flynn will be paid at Rentokil.

"I'd hate to go out into the market at the moment and try to find senior executives," said Brendan Hopkins, chief executive of Australasian media company APN News & Media, the publisher of the New Zealand Herald, after the company's annual meeting last week. "People with international media experience, which is fundamentally what we're looking for, are few and far between."

Fairfax could settle for an internal candidate and promote Evans, who was named chief operating officer in March, said Shaw Stockbroking's Fraser. Evans, 51, was put in charge of Fairfax's Australian daily newspapers, stoking speculation he is being groomed to replace Hilmer.

- BLOOMBERG, additional reporting, staff reporter

What Fairfax owns

In Australia: Newspapers and magazines include the Sydney Morning Herald, the Age, Australian Financial Review, BRW, and the Sun-Herald.

In New Zealand: Newspapers and magazines include the Dominion Post, the Press, the Sunday Star-Times, TV Guide, Cuisine and the stuff.co.nz website.

Fairfax also publishes regional and community newspapers, financial and consumer magazines, and provides online services through Fairfax Digital in Australia.