Morningstar | Despite the Cat Among the Pigeons, Nine-Fairfax Merger Inches Towards Completion
We lift our fair value estimate on Fairfax Media by 6% to AUD 0.75 per share. It reflects the implied value based on our new AUD 2.00 intrinsic assessment for the merged Nine-Fairfax entity, as per the merger terms of 0.3627 Nine shares plus AUD 0.025 cash dividend for each Fairfax share. This follows Fairfax shareholders' approval of the merger at the Nov. 19, 2018 Scheme Meeting, clearing the last hurdle before the merger is consummated on Dec. 7, 2018.The value uplift for the enlarged Nine-Fairfax group stems from our AUD 62 million synergy expectation from the combination, with the most obvious sources being corporate expenses and non-content-related areas, such as back office, promotional/advertising, communication, information technology, and professional fees. Even this may prove conservative, given the potential upside from collaboration and savings on newsroom/journalistic resources over time.
As such, we see value in shares of Fairfax at current levels, trading at an 18% discount to our revised intrinsic assessment. For further details on our view on the Nine-Fairfax merger, see our report: "As Investor Exuberance Turns to Despair, We Turn Positive on Nine-Fairfax Combo," published Nov. 19, 2018.
Lastly, we are bemused by former Domain CEO Antony Catalano's late (and failed) bid to derail the Nine-Fairfax merger. We applaud his efforts to liberate value for Fairfax shareholders, especially in light of the stock price decline since the Nine merger was first announced. However, Fairfax shareholders were not privy to the contents of the mysterious letter he sent to the chairman and, as such, had no alternative proposal to consider. Catalano's move was also not helped by its timing, coming on the night before the Scheme Meeting. While he was apparently seeking to only delay the meeting so that his alternative proposal can be put to Fairfax shareholders, Catalano appears to have breached the limits of "leaving it to the last second."
Fairfax Media is engaged in the publishing of news, information and entertainment, advertising sales in print and digital formats, and radio broadcasting. Co.'s segments include: Domain Group, which is engaged in real estate media and services business; Metropolitan Media, which is engaged in metropolitan news, sport, lifestyle and business media; Australian Community Media, which is engaged in newspaper publishing and online for all Australian regional, community and agricultural media; New Zealand Media, which is engaged in newspaper, magazine and general publishing and online for all New Zealand media; and Radio, which is engaged in metropolitan radio networks in Australia.
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