So the Fairfax share price is in the doldrums. The real question is whether the organisation will survive in a recognisable form. So news that Fairfax has sold a substantial asset (Trade Me) and bought down debt is interesting.
Fairfax’s sale of its 51 per cent stake in the online auction house Trade Me is an important early step along a treacherous journey to save its iconic media empire. In October I encouraged Fairfax’s board to do exactly this in addition to several other initiatives.
The $600 million that will be crystallised from the divestiture of a non-core and geographically-isolated asset will help Fairfax eliminate a substantial chunk of its debt. This has clear merits, the most obvious of which is radically reducing interest repayments that were absorbing Fairfax’s free cash-flow.
To my mind this will settle the question of whether Fairfax is likely to be financially distressed or economically distressed. I’m not convinced that debt is their problem as opposed to not having a product that can be sold at a profit. I can’t think of a single reason why The Age or the Sydney Morning Herald should attract sufficient paying customers to survive. Radical reform is required if Fairfax is to survive.
Christopher Joye has some ideas:
Fairfax would be best suited to a privatised structure that unifies owners with managers. As a non-public entity, Fairfax would also be spared the myopic pressures of fund managers trying to bolster monthly returns. This is not conducive to effective long-term decision-making.
Going private isn’t a bad idea – neither are some of his other ideas. Merging with either Channel Nine or Ten (there is a problem of cross-ownership laws here) and better cost control. I can’t really fault any of that, but it just isn’t enough.
Three things need to happen to any firm that gets into trouble.
(1) Fire the existing management – lock, stock and barrel.
(2) Recapitalise the firm – at this stage would anyone want to pump more money into Fairfax? Especially if you can’t fire the management?
(3) Re-establish the product market presence. Herein lies the problem – does Fairfax have a product to sell? In that business their journalists are the product – so along with the management a lot of the journalists would have to go too. Christopher Joye reckons they might be able to re-establish a product market presence:
It’s well-known that Fairfax has let great commercial opportunities slip through its fingers, and suffocated the start-ups it has fostered. If it has any chance of growing, this has to stop. Here Fairfax would benefit from an injection of experienced venture capital DNA. This is why a consortium involving successful private equity and/or high net worth investors might be ideal.
Again – I’m under-whelmed. To survive Fairfax needs a new product offering now. Not a history of good ideas that get fluffed, but a new product now. In March next year the Age and the SMH are going tabloid – but is that really a new idea?
Over the past couple of years Christopher Joye has had some good ideas for Fairfax that should have been implemented. Rather than appointing him as a columnist to the AFR (a jewel in the Fairfax empire) they should have appointed him to their board. Now, however, I think it is too late.