Fairfax boss confirms private equity offer — but New Zealand left out

Private equity giant TPG has made an offer for the "crown jewels" of Fairfax Media, according to AFR's Street Talk gossip column.

The San Francisco-based TPG Capital (no relation to the Aussie telco TPG) is said to want Fairfax's Domain real estate site plus the publisher's three largest mastheads: the Sydney Morning Herald, Melbourne Age and Australian Financial Review (which Street Talk says are expected to be valued at $A2.5 billion; Fairfax shares closed Friday at $A1.06 for a market cap of $A2.44 billion).

Left out of the deal are Fairfax's New Zealand operation (which had been positioned for a possible merger with NZME), the group's Australian regional newspapers, its majority stake in the Macquarie Media network of radio stations across the Tasman and its 50% stake in streaming video on-demand service Stan.Those assets would stay with existing shareholders, AFR says.

Fairfax chief executive Greg Hywood confirmed the TPG offer in an email to Fairfax staff earlier today. He called it a "preliminary indicative" proposal and said it was still subject to a number of conditions including approval by Australia's Foreign Investment Review Board.

If the "crown jewel" Australian assets do go to TPG, it would arguably make it more likely that another player would swoop on some or all of Fairfax's New Zealand assets.

In the wake of the Commerce Commission's merger rejection, MediaWorks and its private equity owner Oaktree Capital have been in the frame, as has Horton Media.

A turbulent week for Fairfax also saw Mr Hyland announce a $A30 million cost-cutting plan and 125 journalist redundancies across the SMH, the Age and the AFR (or about a quarter of their collective newsrooms) — a move that now looks like preparing the three mastheads for sale. According to Street Talk, Domain and its real estate advertising are TPG's target, and account for most of its valuation, with the three newspapers seen as vehicles to help extend its reach. 

Reporters at Fairfax Austalia walked out and began a week-long strike as Mr Hyland's cost-cutting plan was announced on Wednesday. But some, at least, are putting in overtime this weekend regardless — maybe in an effort to discover their future.

TPG has taken some flak for its asset-strip, load up with debt then list approach with a previous buyout in the Australian market, but in truth it's just sticking closely to the private equity playblook.

RELATED VIDEO: Our expert panel dissects the failed Fairfax-NZME merger.

To put those revenue numbers in context, Fairfax’s first-half revenue from its New Zealand operation fell 4.1% to $A159.2 million as digital revenue grew but not fast enough to offset the decline of print. Advertising was down 9.9% in New Zealand dollar terms to $107.9 million, it said. Circulation revenue also fell. A profit/loss figure wasn’t released for divisions, including New Zealand. In 2008, Fairfax NZ’s full-year revenue was $NZ592.8 million.