KEY POINTS:
Canwest MediaWorks minority shareholders should have a good look at the Qantas takeover debacle before they rush to take up the $2.43 a share offer from an Australian private equity firm for their stakes.
The announcement that Ironbridge Capital - a smallish private equity firm with no form in news media operations, ownership or management - wants to take out New Zealand's major private television operator deserves careful examination.
Does Ironbridge really want to build CanWest MediaWorks - which operates TV3, C4 and a slew of radio stations including Radio Live - into a stronger corporate beast, or strip it out and flick the assets later to a real media operator as the Australasian newsmedia shakeout gathers pace?
Who owns news media - and the extent to which foreign owners cherish their stewardship - is important in nation building.
The Overseas Investment Commission, which tends to be a rubber stamp, should ask a few pertinent questions of Ironbridge Capital, which does not have the added cachet an experienced overseas news media owner would bring to the boardroom table.
Across the Ditch, Qantas chairwoman Margaret Jackson's corporate reputation is in tatters because of the abandonment of the Australian Airline Partners A$5.45 share bid after the private equity consortium failed to get 50 per cent of shareholder acceptances in the bag by 7pm last Friday.
Jackson strongly plugged the deal.
But not enough shareholders were convinced it was priced aggressively enough in their favour to make it worth their while canning out of Qantas shares.
At issue is the extent to which Qantas' management team - which were insiders to the deal - were compromised by the sweetheart packages that APA offered them to keep them onside after the proposed ownership change, and to what degree their own interests affected the board's decision to recommend the ultimate bid price.
Some major institutional shareholders believed they would be better off hanging in for the inevitable upside that would be achieved if the management team could be persuaded to go ahead and implement the structural efficiencies that APA would have brought to the table, instead of selling out at what is a derisory price in comparison to Air New Zealand shares.
MediaWorks has been in play since its Canadian majority shareholder decided to refocus its ambitions closer to home.
The NZ subsidiary of a global media empire started by the late Canadian entrepreneur Izzy Asper is a relatively tasty morsel, despite the inevitable independent opinions that will be trotted out over the next few weeks to substantiate what on the surface seems a rather niggardly offer.
The deal is being effected through two subsidiary companies, CanWest MediaWorks Ireland Holdings and HT Media - a company controlled by Ironbridge Capital.
Ironbridge Capital has agreed to pay $386 million for CanWest's 70 per cent stake.
Assuming all goes to plan, and minorities do not force Ironbridge Capital to raise its $2.43 a share offer to get to the 90 per cent threshold at which its plans for a full takeover will become a certainty, the Australian firm will pay a mere $550.86 million for the equity in the company.
This is only $20 million more that the $530 million market capitalisation that CanWest MediaWorks sported at close of play on Monday when shares were $2.34 each.
The spinmeisters plugging the deal have fudged the issues by stating a "takeover offered for all shares (is) to be launched valuing 100 per cent of MediaWorks at $727 million (including net debt)".
But that's simply a blinder.
Once the private equity firm gets control, it will load plenty more debt on to MediaWorks' very lowly geared balance sheet so it can extract sufficient cash from the company to reduce its overall buy price.
This will work extremely well from a tax planning perspective for the company and its prospective new owners.
But the current minority owners should stay focused on their interest.
What's central to these shareholders is the amount they will get for their shares, not some illusory statement that gives the impression that the amount they should receive for their shares should be reduced because the private equity firm will acquire MediaWorks' debt.
CanWest Mediawork's 70 per cent shareholder, CanWest Global Communications, has already signed its majority stake over to Ironbridge Capital in a "lock-up agreement" formed after a behind-scenes competitive bidding process.
Ironbridge Capital's takeover offer will be subject to a minimum acceptance level of 50 per cent.
But that's a fait accompli as CanWest MediaWorks has agreed to tender its entire stake into the offer, fulfilling the minimum acceptance levels.
Minorities will want to know what will happen however if Ironbridge does not succeed in getting to the 90 per cent threshold at which compulsory acquisition is possible.
Will the bid be scaled back to 50 per cent on a pro rata basis, or will CanWest parent company's interests take precedence?
MediaWorks' three independent directors - chairman David Jackman, Susan Sheldon and Craig Thompson - will oversee all aspects of the company's response to the offer.
Grant Samuel has been commissioned to produce an independent report for them.
At issue is whether Grant Samuel will say Ironbridge Capital's offer is within an expected price range, or suggest it needs to be boosted.
Bear in mind brokers' consensus forecasts on the Qantas share price were higher than Grant Samuel's range for the stock.
There are other important issues.
Yesterday's official statements to the NZX carried the imprimateur of CanWest MediaWorks' chief executive Brent Impey - rather than his chairman.
This is an unusual step, as Impey may well be considered an insider to the Ironbridge's offer if he has agreed to stay and run the company subject to the usual private equity golden handcuffs.
Impey did not venture a view on the merits of the offer, so he may not have compromised himself. But some clarity is needed.
At the very least Jackman should step into the spokesman's role from now on. Shareholders are already being softened up on the valuation issue
They have been told the offer price of $2.43 a share is:
* A 49 per cent premium on the closing price of $1.63 on October 20 last year, the day before CanWest said it was reconsidering its ownership stake.
* Higher than MediaWorks' shares have traded in the last two years.
The shares have traded up to $2.40 since October 20, and the on-market premium is less than 10c.
MediaWorks' shareholders will also be entitled to the company's interim dividend of 4.8c a share intended to be paid on May 14.
Ironbridge's offer permits MediaWorks to pay a fully imputed special cash dividend of about 11c a share before the settlement of the takeover offer.
This special cash dividend will be considered by MediaWorks' board. If it is paid, the Ironbridge offer price will be adjusted accordingly.
The important thing to note is that these two supposed benefits are price neutral. Because of timing, the minority shareholders will inevitably get the dividend as it will be paid out of MediaWorks' pockets, not Ironbridge Capital's.
It's unclear whether Ironbridge will benefit from the special cash dividend as not sufficient details have been posted.
The company's balance sheet is not excessively leveraged in the eye of many risk-embracing funds, which view it as "lazy".
CanWest MediaWorks posted $65.7 million earnings before interest, income tax, depreciation and amortisation last year. That rose 3 per cent for the first quarter of this year to $24.3 million.
Given the potential for conflicts of interest, the least minorities should ask is that MediaWorks provides an immediate update on earnings, revenue and the outlook - and clarification of where Impey stands.
If Impey is conflicted, all approaches from now on should be to the chairman and other independent directors. If management knows how much Ironbridge intends to extract from MediaWorks - that should be on the table for all shareholders to make their judgments.
