CONTROL by stealth is the new black in corporate fashion.
And the world’s richest woman, Gina Rinehart, is parading the catwalk. Having amassed at least 15 per cent of Fairfax, she is dressed up to get at least one seat on the media group’s board.
There is an expectation that she will move to the 19.9 per cent takeover threshold, but there are no suggestions this will be followed by a full takeover bid.
She picked up at least 42 million shares – or about 2 per cent – yesterday. Given the volume through the market, Rinehart could now have up to 17 per cent of the company.
Regardless of this flurry of share activity, the dial on the company’s share price barely moved – testament to the fact that the market does not see the company as being in play.
Until this week, Rinehart had been sitting on 13 per cent of Fairfax and unsuccessfully agitating for two seats at the board table. Fairfax chairman Roger Corbett had stood firm and some would say provocatively appointed an independent director, James Millar.
But it now appears likely that Rinehart will get board representation.
Her case has been bolstered by support from another of Fairfax’s large shareholders, Allan Gray Australia. With a 9 per cent stake, its boss, Simon Marais, said of Rinehart’s move, ”I don’t have a problem and I think it’s good for the company to have people [on the board] with their own money invested – they tend to be more careful.”
From the Fairfax board’s perspective it seems like a fight it no longer wants to have.
It is believed that neither Rinehart nor her representatives contacted Corbett before wading into the market yesterday and she has visited the company only once since taking her initial holding.
It remains to be seen whether Rinehart, once on the board, will attempt to exercise influence over the company’s evolving strategy or the newspapers’ editorial content.
For Marais and the other shareholders sitting on the register and hoping for some corporate takeover action, including Maple Brown Abbott and Colonial, they could be waiting a while.
Rinehart is the latest in a list of entrepreneurs who have used the cheap control option of taking a stake in a company and placing their people on the board. Kerry Stokes took de facto control of West Australian Newspapers using this play and, more recently, James Packer has been attempting to do the same at Echo Entertainment – the owner of Sydney’s Star Casino.
Echo’s chairman, John Story, resisted the move but was ousted by his own board last week after relentless pressure from Packer.
Packer has only 10 per cent of Echo and does not yet have a seat at the directors’ table. But he plans to increase this when he gets a regulatory green light.
Rinehart has already experienced some success at this game. She was offered a seat on the board of television group Ten, having picked up a 10 per cent holding.
The boards of these targeted companies understand that the predators can move beyond 19.9 per cent by legally creeping up the register by 3 per cent every six months without the need for a takeover.
Using what is called the ”creep” provisions, a suitor can move to near 26 per cent in a year in order to gain a controlling shareholding.
Fairfax, which owns The Age and The Sydney Morning Herald, has been under serious financial pressure as advertising leakage to the lower margin digital businesses and a poor external environment for advertising have crimped profits across all its newspapers – particularly the metropolitan dailies.
But the company’s chief executive, Greg Hywood, this week announced the board expected earnings before interest, tax, depreciation and amortisation of $500 million for the full year.
While this was $20 million below analysts’ forecasts and 18 per cent below last year’s result, there were predictions it could have been worse.
Marais, who did not sell any Fairfax shares yesterday, said he was relieved by the news.
Expectations for a downgrade had been building among some analysts following major profit downgrades from Ten in February and Seven West Media in April and amid continuing gloom about the sector.
But the announcement left the share price unmoved at 60¢, above last week’s record lows of 57¢.
Hywood said revenue for the second half would be about 8 per cent below last year, after the 7.5 per cent fall in January revenues revealed at the company’s half-year results in February, and that ”the difficult trading environment” had continued, as predicted.
However, cost savings under the ”Fairfax of the Future” project were ahead of schedule, he said, ”with the 2012 run-rate exceeding the targeted $40 million and accelerating”.
There are expectations that if Rinehart has a say in the company’s operations, she will be looking to step up the cost-savings target – although this can’t be confirmed given that the mining magnate plays her cards very close to her chest.
She might also be seeking a break-up of the business. Some analysts suggested that a break-up play would only stack up if the Fairfax share price was well below its current levels.
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