Fairfax Offer For Inl Publishing “Fair”
Independent valuer Grant Samuel says that the John Fairfax Holdings Limited’s $1.188 billion cash offer for Independent
Newspapers Limited’s (INL) New Zealand publishing business is fair.
Grant Samuel’s report has been mailed to INL shareholders as part of a package of information backgrounding the Fairfax
offer to purchase INL’s New Zealand newspaper, magazine, magazine distribution, commercial printing and website
operations.
INL’s 66.3% shareholding in Sky TV and its Australian business, the Geelong Advertiser, are not part of the proposed
sale.
INL chairman Ken Cowley said the Board of INL was recommending shareholders accept the Fairfax offer for the publishing
assets.
“The Board views the sale as the best means of maximising value to shareholders,” Mr Cowley said.
“The sale price is a significant premium on the book value of the assets and eliminates the historic market discount on
the value of the publishing assets.
“The sale would also leave INL in a strong financial position by allowing the retirement of all existing publishing debt
and creating a net cash balance of around $754 million. “Although INL’s directors were not actively seeking any
expressions of interest in the publishing business at the time of the Fairfax offer, the offer was such that directors
felt that the interests of the company and its shareholders would be best served by accepting it.”
INL shareholders will consider the Fairfax proposal at a special meeting in Wellington on June 30. The proposal is the
subject of a special resolution, requiring approval by a majority of 75% of the votes cast on the resolution.
Mr Cowley said the proceeds of the sale were expected to exceed the book value of the publishing business by around $314
million. (The book value of the New Zealand publishing business was $860 million as at 31 December 2002.)
The Fairfax offer helped crystallise an immediate increase in INL’s share price and value. The share price increased by
21% following the announcement of a conditional sale on 14 April 2003. Page 1 of 2 “INL’s directors do not consider that
this increase in shareholder value would have been achieved in the foreseeable future by continuing to own and operate
the publishing business within INL.,” Mr Cowley said.
He said Grant Samuel had valued INL’s New Zealand publishing business in the range of $1.14 billion to $1.27 billion.
Because the Fairfax offer of $1.188 billion falls within that range it is fair.
Grant Samuel said that although the Fairfax offer was not the result of a competitive process, it was reasonable to
conclude that Fairfax, as an existing newspaper publisher, should be able to pay the highest price for the New Zealand
publishing business.
The Fairfax offer was for cash only but Grant Samuel noted that INL shareholders could purchase Fairfax shares on market
should they wish to retain a publishing investment.
Grant Samuel said the Fairfax offer would change the nature of INL from an operating business to an investment company
holding a 66.3% stake in Sky TV, the Geelong Advertiser and cash. It noted that there were a range of options available
to INL, including:
The sale of the Geelong Advertiser which could generate in excess of a further $60 million. Return cash to shareholders
through the repurchase of INL shares or payment of special dividends. Increasing INL’s shareholding in Sky TV and
returning any remaining cash to shareholders.
Mr Cowley said the Board had not fully considered the best use of this residual cash balance which would be the subject
of a full review of all strategic options once the proposed sale was completed.
The review would consider all strategic options and alternatives, including a potential return of cash to shareholders
in a tax-effective manner. “Our focus is to maximise value for shareholders by firstly completing this sale,” Mr Cowley
said. “We will then consider future options for the best use of the sale proceeds.”