INL to sell NZ newspaper business for $1.2b to Fairfax

10.30am

Independent Newspapers, 45 percent-controlled by Rupert Murdoch's News Corp, said today it had agreed to sell its New Zealand newspaper operations to John Fairfax Holdings for $1.188 billion in cash.

The sale excludes the Victorian newspaper, the Geelong Advertiser, although INL is considering offers for that paper which, if accepted, would value the combined Australasian publishing interests at $1.25 billion.

INL's publishing business includes The Dominion Post, The Press, The Sunday Star-Times, Sunday News, seven regional dailies and 61 community publications. It also includes 13 magazine titles and the Gordon & Gotch distribution business as well as the Stuff website business and the commercial printing business.

The INL board met yesterday and approved the agreement, INL chairman Ken Cowley said.

Mr Cowley said INL directors would keep shareholders informed of progress of the transaction in advance of a vote on the sale by shareholders at an extraordinary general meeting, possibly in June.

"The price paid by Fairfax Holdings would provide shareholders with a premium," he said.

The price was at the top end of analysts' estimates, which had been as low as $600 million.

Mr Cowley said the achievement of the sale recognised the considerable effort of INL management and staff, who had built a great New Zealand company.

The sale does not include Sky TV, which is two thirds owned by INL.

The sale is subject to Fairfax completing its equity funding for the acquisition by April 23 and Fairfax completing its due diligence review of the business and being satisfied that there are no material adverse circumstances by May 12.

Fairfax also needs to obtain Overseas Investment Commission (OIC) consent by June 25.

INL shareholders must approve the deal by June 30.

If the conditions are fulfilled, closing of the transaction and change of ownership is scheduled for July 1 with Fairfax assuming ownership on that day.

The parties propose to agree more detailed contractual terms for the sale.

If those terms are not agreed by May 16 then the dates for the fulfilment of the OIC consent condition and the INL shareholder condition and for closing may be deferred for up to two months.

However the sale is not conditional on more detailed contractual terms being agreed.

INL chief executive Peter Wylie said he would continue in the position until the sale was completed on July 1. He would then be returning to Australia.

Fairfax said Brian Evans, currently its group general manager, would be responsible for its New Zealand publishing business.

The trading halt on INL will be lifted from opening of trading tomorrow. INL's shares last traded at $3.38.

Fairfax's flagship mastheads include the Sydney Morning Herald, Melbourne Age and Australian Financial Review.

The sale is expected to trigger a full takeover bid by INL for the one third of Sky TV it doesn't own. Sky's price, which closed 27 cents higher on Friday, rose another 5c today to $4.00. Analysts said News Corp could also simultaneously launch a full takeover for INL.

The move is considered part of Mr Murdoch's bid to build a global satellite television empire and switch out of the print media.

After years of unsuccessful attempts, Mr Murdoch finally struck a deal last week for the final piece of his global satellite TV empire, DirecTV in the United States.

News Corp has agreed to pay US$6.6 billion ($12.2 billion) for 34 per cent of Hughes Electronics from General Motors. Hughes owns DirecTV, America's leading satellite pay-TV broadcaster with 11 million subscribers.

If that deal is passed by US regulators, Mr Murdoch will have DirecTV covering the US market, British Sky Broadcasting in the UK, Star TV in Asia and the Middle-East, Foxtel in Australia, Sky Brasil, Sky Mexico and a controlling stake in Sky TV in New Zealand which has just over half a million subscribers.

Fairfax has long been tipped as tying up with Wilson & Horton, publisher of the New Zealand Herald and nine provincial dailies. However, brokers said it was an equally good fit with INL.

Telecom, which owns 12 per cent of INL and 10 per cent of Sky, rose 4 cents to $4.66 today. It is expected to fully support the direction change for INL as it is really only interested in the Sky operations.

Fairfax has wanted to expand in New Zealand and would be able to bring huge expertise to the INL newspaper group, analysts said.

Independent News & Media plc boss Sir Tony O'Reilly has long eyed the Fairfax group but this move is likely to hinder his ambitions in that direction as he indirectly already controls New Zealand's other large newspaper group, Wilson & Horton. Independent owns 45 per cent of APN News & Media, which in turns owns Wilson & Horton.

The Commerce Commission is unlikely to allow one owner of both newspaper groups.

Forsyth Barr Frater Williams head of research Rob Mercer said the sale, if it included the Geelong Advertiser, would mean a $100 million premium.

"It's what we'd classify as a fair price, it doesn't seem to give much premium that you'd have expected given the quality of those assets.

"You could have expected it to be a little bit higher but that's really where the market thought it would be worth...," Mr Mercer said.

The offer values INL shares at about $4.20.

"They might push the cover prices a bit harder, advertising rates, try and lower costs -- they're going to be like any other active investor in these assets and look to grow value to cover purchase costs."

The INL stable would be a "very material asset" for Fairfax, which has a market capitalisation of A$2.2 billion ($2.46b).

- NZPA