Fairfax shares rocket on Rinehart raid
Australia’s richest woman, Gina Rinehart, has become the largest shareholder in newspaper publisher Fairfax Media in what could become a play for control of the 181-year-old company.
Fairfax shares rocketed as much as 15 per cent before closing up 7.5 cents, or 10.1 per cent, to a three-month high at 81.5 cents, making it the biggest mover among the top 200 shares.
Ms Rinehart, a mining industry billionaire, had acquired 12.8 per cent of the nation’s second-largest newspaper company by late tonight. This puts her ahead of Commonwealth Bank’s 12.4 per cent, according to IG Markets analyst Chris Weston.
Gina Rinehart ... Australia's richest person. Photo: Bloomberg
A stockbroker acting for Mrs Rinehart - Australia's richest person - last night approached fund managers in a $192 million attempt to acquire a 10 per cent stake at 81.77 cents a share in Australia's biggest independent media company, which owns this website.
If successful, the purchase would give her a 14 per cent stake in Fairfax and possibly a seat on the board. She already has a 10 per cent stake in the Ten Network, of which she is a director alongside Lachlan Murdoch.
City Index chief market analyst Peter Esho said the share raid was "a big endorsement for the media sector which has really been beaten down and Fairfax hasn’t had a catalyst for its shares until this".
"The investment in Ten sets a precedent that she sees value in the media sector," he said.
Last month Mrs Rinehart's estimated wealth swelled by $10 billion to almost $20 billion after the South Korean steel company Posco increased its stake in an iron ore deposit held by her flagship company, Hancock Prospecting.
Fairfax was capitalised at $1.74 billion at yesterday's close of 74 cents. Today's rise brings that value beyond the $1.9 billion mark. The company remains vulnerable to acquisition, given that its share register does not have a significant holding by an individual investor.
The development comes at a critical time for the media industry, which is battling a weak advertising market and is adjusting to a structural shift towards the internet.
It also comes as the federal government is scrutinising ownership in the media as part of two inquiries into the sector.
Notoriously secretive, Mrs Rinehart has rarely discussed her interests in the media. However, sources close to her recently indicated she was seeking a bigger influence in national affairs.
During 2010, Mrs Rinehart was prominent in opposing the federal government's proposed mining tax.
Then she surprised media watchers by taking a 2 per cent holding in Fairfax and paying $165 million for the Ten Network stake.
Soon after the Ten Network acquisition, Hancock Prospecting stated it was interested in investing more in the media business, "given its importance to the nation's future".
In January last year Mrs Rinehart quietly increased her holding in Fairfax to 4 per cent.
The company owns The Australian Financial Review and a national radio network based on 2UE-3AW, and extensive rural publishing interests.
The chairman of Fairfax, Roger Corbett, was unavailable last night and Mrs Rinehart's office did not return calls.
The approach for the 235 million shares was made to fund managers by the broker Morgan Stanley after the sharemarket closed yesterday. The broker did not disclose the buyer but was offering 81.7¢ a share, or a 10 per cent premium to the closing price yesterday.
Last night one former Fairfax board member expressed doubts that Mrs Rinehart could wield excessive influence over the 180-year-old company.
Other fund managers cited the inability of the former director John B. Fairfax to exert influence in the boardroom, ultimately leading the Fairfax family to sell its 14.6 per cent stake.
Fairfax's biggest shareholder, Commonwealth Bank, has 12.37 per cent, although that is held on behalf of fund managers. Maple Brown Abbott and Orbis Investment Management hold 8.9 and 7.3 per cent respectively.
Short-sellers caught short?
One group of investors unlikely to be cheering the Rinehart raid on Fairfax will be short-sellers - those who borrow the stock in anticipation that its price will fall.
Fairfax has been among the most popular shares to be shorted in part because of the gloomy advertising industry prospects as retailers and other industries cut back on ads.
The Rinehart purchase may prompt a scramble by short-sellers as they try to purchase stock before it begins a rally, said CMC Markets chief market strategist Michael McCarthy.
"[The purchase by Mrs Rinehart] does seems a bit of opportunistic move given the performance of Fairfax shares over the past couple of years," he said. Fairfax shares are roughly half the level of a year ago.
"If she gets 10 per cent, that will make her the largest single shareholder," Mr McCarthy said.
"There is a long tradition of Australian magnates taking media stakes and it will be hard to avoid the perception this will be used as a soapbox.
"It does seem to cut across the Fairfax culture which to external parties appears to be fiercely independent," he said.
With BusinessDay's Chris Zappone