Private equity firm TPG might have suffered a blow to its plans of taking over Fairfax Media, but the US-based firm is unlikely to walk away from plan altogether. The Australian publisher still has value to offer for the firm but its next move is not known.
Surging stock price to stall the buyout attempts
DealMarket reported on the private equity firm’s plans last week. When the plan came out, the publisher had already been enjoying from surging share price. As the news broke out, Fairfax Media saw its share price increase further.
The share price has also enjoyed from the company’s recent announcement to spin off the online property platform Domain, which is thought to be TPG’s real target, according to some experts. Prior to the spin-off announcement, Fairfax had a share price of AUS$0.87, with the price jumping up to AUS$1.15 on Wednesday.
With the price surging by 32%, TPG felt it might be best to walk away from a buyout attempt. However, the private equity firm is likely to return to circle around the company once the share price starts dropping.
Spinning off Domain still the main goal
According to experts interviewed by the Australian Financial Review, the private equity is likely to continue pursuing the deal and spin off Domain once the opportunity is right. Deutsche Bank analyst Entcho Raykovski told the newspaper TPG’s “bid would be contingent on successfully selling of Fairfax’s other assets and achieving an exit multiple of 17.5 times EBITDA for Domain when it sells it off”.
However, the newspaper pointed out Fairfax’s traditional publishing assets could also provide value. The papers under its wing, including the Sydney Morning Herald, are producing cash and the new digital print structure could well help cut the costs in some of the newspapers. Whether TPG would decide to hold on to the papers for long remains rather unclear at the moment.
Fairfax is currently implementing a new publishing model to boost its struggling media arm. The company is expected to face further redundancies in the future. These have the potential to move the share price either way, adding its own element to TPG’s plans.
For the private equity firm, the goal now is to find a way to buy the whole company. As long as the retail business is linked with the traditional publishing arm, Domain will be undervalued. According to Christopher Niesche, “TPG will be back and it can’t wait too long and risk Fairfax selling off Domain and seeing the opportunity disappear”.
Niesche wrote in the New Zealand Herald that TPG’s comments last week about losing interest are not a serious indication of a loss of interest but more a strategy to add a knock on the share price. Publications are suggesting the private equity firm already has debt lined up for the sale.
Now, it’s just a matter of time before someone has to make the first move.