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Asset sales the likely purpose of Fairfax activists

Malcolm Maiden

Published: December 31 2012 - 3:00AM

THE combined shareholding in Fairfax Media that is due to be disclosed on Monday by Gina Rinehart, media entrepreneur John Singleton and his friend and business partner Mark Carnegie is expected to only marginally advance Rinehart's existing stake of just under 15 per cent.

Singleton and Carnegie's Gutenberg Investments Unit Trust is believed to have acquired less than 1 per cent of Fairfax's shares. The combined stake of less than 16 per cent will still be below the 18.7 per cent holding that Rinehart held this year before selling down, and because the trio are acting in concert, 19.9 per cent is still their takeover threshold.

But the tie-in flags a push for changes at Fairfax, including major asset sales. A partial takeover offer is one possible end-game, but the situation is fluid.

About 12 per cent of Fairfax's shares changed hands on November 30, raising the possibility that other players are on the share register, below the 5 per cent disclosure level.

The structure of the Gutenberg trust may point to the consortium's thinking. Carnegie is a co-owner of Macquarie Radio Network with Singleton, and Macquarie is a unit holder - but Carnegie also holds an interest in the trust through his $130 million Companion Fund, an activist investment fund that has also acquired a small stake in Qantas.

Singleton and Carnegie are expected to argue that the Fairfax board's view that the group cannot add value by carving up the group is wrong, and Fairfax would be worth more if it sold or spun out assets, including its New Zealand newspapers and the Australian regional newspaper network it acquired with its takeover of Rural Press.

Fairfax's radio stations, which Macquarie Radio failed to buy this year, will also be on their list.

Activist campaigns are political campaigns. The aim is to pull together a coalition that is powerful enough to force change without the need for a full takeover, and Fairfax presents some special challenges.

The group is dealing with a cyclical advertising downturn as it continues to shift into digital media. It has a clearly articulated plan that involves continual reporting on print, internet and mobile platforms as consumers use them throughout the day, and while Rinehart has criticised the company and its leadership, she has not produced an alternative plan. Singleton and Carnegie are long-term media investors and need to fill that gap to attract support: asset sales are the probable centrepiece.

Fairfax is also not a manufacturing company or a mining company. It is a major contributor to the reporting and analysis of matters of local and national interest, and its position is reinforced by a charter of editorial independence. Its journalists are a key asset, its customers are its bread and butter, and the media laws it operates under are the province of Canberra.

Fairfax is listed. Anyone can buy its shares, and within the limits of the media cross-ownership laws, anyone can take it over if they have the financial backing. But Fairfax's share price fall this year has not flushed out a takeover offer, and any attempt to gain influence or effective control without a full bid - by mounting a partial bid that seeks to create a 30 per cent-plus stake, for example - will need to not only attract some shareholders but also not alienate Fairfax's other stakeholders.

Rinehart has not pulled that broader stakeholder coalition together, and there were hints of a new tack in Friday's announcement that she, Singleton and Carnegie would act in concert.

Rinehart has declined to sign Fairfax's charter of editorial independence as a precursor to her obtaining board representation, and Singleton has criticised the charter in the past. On Friday, however, Singleton said he and Rinehart both believed that ''integrity and accuracy'' were the ''lifeblood'' of Fairfax.

A group of eminent people should review the charter, he added, to ''enable its relevance''. An update of the charter, that is, rather than the elimination of it, proposed perhaps as part of a broader campaign for change.

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