KEY POINTS:
Sir Anthony O'Reilly and his private equity partners yesterday moved a step closer to taking over APN News & Media when their increased bid was accepted by the APN board, but the bid still faces resistance from APN's second largest shareholder.
The independent board committee established to examine
the bid yesterday recommended shareholders accept the offer from the consortium after it increased its bid from A$6.05 a share to A$6.10, valuing the media company at A$3.8 billion ($4.3 billion).
But the Australian fund manager Perpetual Investments with 14.8 per cent of the company - the second biggest APN shareholder after O'Reilly's Independent News & Media - indicated it was likely to reject the new offer. "It certainly doesn't interest us," Perpetual head of equities John Sevior told the Business Herald.
"It's too low, particularly compared to other comparable newspaper transactions in the last 12 months," Sevior said, adding he viewed APN primarily as a newspaper company.
"APN has high quality assets and they've got a very consistent record of growing earnings over time."
The consortium seeking to privatise APN includes O'Reilly's INM, which would end up with 35 per cent of APN, and US-based private equity companies Providence Equity Partners with 37.5 per cent and Carlyle Group with 27.5 per cent.
O'Reilly's Independent News & Media already owns 41.6 per cent of APN.
The offer is built around a scheme of arrangement that will require support of 75 per cent of shares not held by Independent, Carlyle or Providence.
On that basis it appears resistance from Prudential - with more than a quarter of the outstanding shareholding - could prevent the proposal going ahead.
At stake is the ownership of press and radio assets in Australia and New Zealand.
They include provincial newspapers in Australia and the New Zealand Herald, and a 50 per cent stake in the Australian Radio Network joint venture with US company Clear Channel Communications.
In New Zealand ARN owns The Radio Network with brands including Newstalk ZB and Radio Sport.
Foreshadowing next week's profit announcement, APN said its trading profit - earnings before interest, tax, depreciation and amortisation - for the year to December 2006 was estimated to be $348 million, little changed from the $349 million the year before.
APN independent board committee chairman Ted Harris said the board recommended the offer because with INM's controlling stake a competing offer was unlikely.
"The important thing is that the committee believes it's a price unlikely to be offered in the middle term by any other party," he said. "That is not final but it's unlikely because [INM] have said they are not sellers."
Harris said the board decided to recommend the offer after a "great debate between the consortium and the independent committee".
"We received an offer at A$6.05 which we rejected; they came back with an offer of A$6.08 which we said we would not accept. The parties were walking their own separate ways," he said. "They came back last Wednesday with A$6.10."
The A$6.10 offer had to be compared with the share price of A$5.43 on October 20, the day that the consortium made its initial approach, Harris said.
The relaxation of media ownership rules in Australia - announced last year but due to take effect this year - has led to a welter of merger and acquisition activity in the media sector.
While Perpetual's Sevior said the offer was down on other newspaper deals, Harris said the offer represented a multiple of 13 times the adjusted 2006 ebitda of A$292 million, which excludes earnings from the company's radio assets.
Shares in APN fell 7c to A$5.98 on the ASX yesterday.
Paul Xiradis, of Sydney-based fund manager Ausbil Dexia, said the fact that the shares had dropped under the bid price meant "the market is indicating there's not a higher bid in the offing". "That is probably an indication that the deal should get through," he told Bloomberg.
Takeover bid
* APN News & Media includes half New Zealand's newspapers and a 50 per cent share of a joint venture that owns half of New Zealand's commercial radio stations.
* A consortium headed by Sir Anthony O'Reilly with private equity companies Providence Equity Partners and Carlyle Group has increased its takeover offer to A$6.10 per share.
* The offer values the company at A$3.8 billion.
