Fairfax has cashed-in another 15 per cent of Trade Me and announced plans to shed 1900 of its 8800 staff over the next three years as nervousness grows over the future of its newspaper business.
The sale, at A$2.70 per share, raised A$160m (NZ$204m) and has reduced Fairfax's stake in the online auction giant to 51 per cent.
Fairfax bought Trade Me from founder Sam Morgan and his fellow private investors for $700m in 2006 and previously recouped $364m by selling a 34 per cent stake through Trade Me's initial public offering in December.
The latest sell-down capitalises on subsequent optimism over Trade Me's fortunes. Its shares debuted at $2.91 in December, hit a peak of $4.07 on May 31 and closed at $3.56 on Friday.
Alongside the Trade Me news, Fairfax said it was making ''fundamental changes'' to the Australian operations of the company.
As well as strengthening its balance sheet through the share sale, it would:
* Switch The Sydney Morning Herald and The Age to compact formats, similar in size the Australian Financial Review in March 2013.
* Begin selling digital subscriptions to The Sydney Morning Herald and The Age by March 2013.
* Fully integrate its editorial functions across digital, print and mobile platforms.
* Close its Chullora and Tullamarine printing presses in Australia by 2014.
The changes would create A$65m of annual savings that would be on top of A$170m announced in February. The one-off costs of the restructure were expected to be A$248m.
''No one should be in any doubt that we are operating in very challenging times, chief executive Greg Haywood said. He said the company had considered a ''demerger'' a break up of the business and other alternatives.
''The package of strategic initiatives is bold, and several are difficult, particularly as they will impact on some of our people. However, we believe that they are in the best interests of Fairfax, our shareholders, and ultimately the majority of our people.''
Analyst MorningStar issued an ''avoid'' recommendation on Fairfax shares last week after Fairfax forecast its 2012 earnings before interest, tax, depreciation and amortisation would fall 18 per cent to about $500 million.
MorningStar said it expected Fairfax to significantly write-down the A$3.2 billion value attributed to its mastheads and brand names.
''We view Fairfax as a value trap. Industry risk remains high as audiences and marketing dollars desert print and move online. Digital advertising generates lower returns than print,'' it said.
''Fairfax has high fixed costs associated with its printing presses and a highly unionised work force employing 8800. Cutting costs and redirecting the business towards digital is not an overnight exercise and we expect further pain before the business can reinvent itself into a smaller and more entrepreneurial business.''
At the weekend two major institutional shareholders in Fairfax suggested the company could be broken up and its loss-making Australian metropolitan newspaper division shut down. Mining billionaire Gina Rinehart is believed to have upped her stake in Fairfax to about 18 per cent last week.
The Australian Financial Review said speculation was rife that the company could cull 150 journalists in its metro division in Australia. Rival publisher News Ltd was also believed to be headed for a major round of redundancies, with as many as 1000 jobs on the line, it said.
- © Fairfax NZ News
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