Fairfax Media, the media company battling to contain costs as consumers migrate to the internet for news, has sold down its stake in Trade Me to pay for a three-year restructuring of its newspapers that will cost $A248 million and result in 1900 job cuts.
The Sydney-based company sold 59.4 million shares in Trade Me at $A2.70 apiece, in a fully underwritten placement for a total $A160 million, a 3.2% discount to their price at the close of Australian trading on Friday.
Ross Cuthbert from Craigs Investment Partners told ONE News the company has made the move to raise funds for other parts of the business.
"Obviously, they're just looking to raise some money, some other parts of the fairfax business have been struggling lately, and Trade Me has been an excellent performer since its IPO in december last year," he said.
It plans to hold its stake in the online auction site at 51%. Trading in Trade Me shares will remain halted until the bookbuild is completed.
The sale is part of an overhaul of Fairfax's ailing metro print business, which will see the Sydney Morning Herald and Age newspapers reduced to tabloid size from March next year, while their online presence will be put behind a paywall. Digital pricing details will be announced by the end of this year.
Fairfax said it remains open to quitting newspaper printing altogether if it no longer remains profitable, and it will shut two facilities by 2014. Fairfax hopes to lift annual savings to $A235 million by 2015.
"Readers' behaviours have changed and will not change back. As a result, we are taking decisive actions to fundamentally change the way we do business," chief executive Greg Hywood said in a statement. The changes "are necessary to ensure Fairfax retains its position as a leading independent media company and a key voice in our markets."
Fairfax has been fighting running battles on several fronts in recent months, with its biggest shareholder Gina Rinehart pushing for two seats on the board, an Australian strike over outsourcing production to New Zealand, and speculation its plunging share price might attract a hostile takeover from a private equity player.
Last week, it cut full-year earnings guidance by 18% in what's shaping up to be its worst operating performance since 2008. The media company expects earnings before interest, tax, depreciation and amortisation of about $A500 million in the 12 months ended June 30, down from $A607.4 million a year earlier
Fairfax said any impairment testing for its mastheads will be completed as part of its end of year audit. Since 2010 the media company has taken charges of more than $A1 billion against its mastheads and goodwill.
The company's board considered other alternatives, including a demerger, but decided its "integrated multi-platform strategy" added the most value.
The new structure will give Fairfax the option to shift to a digital-only model if print advertising and circulation continues to materially decline, though that would cost an additional $A200 million.
Fairfax will also restructure its editorial operations to cross digital, print and mobile platforms, with greater sharing of resources across regions.
"Our investment in quality journalism and our editorial standards will not be compromised and will continue to underpin our success," Hywood said.
Fairfax shares rose 0.8% to 60.5 Australian cents on the ASX on Friday, having dropped 16% this year. The stock is rated an average 'hold' based on a consensus of 13 analysts, with a median target price of 73 Australian cents.
Trade Me shares fell 2.5% to $3.56 in Friday trading on the NZX, and have surged 32% from their sale in November. The stock is rated an average 'hold' based on a consensus of eight analysts compiled by Reuters, with a median target price of $3.75.