Fairfax-Nine deal: after a brief engagement, wedding bells ring

Illustration: Rod Clement

Less than three weeks after Nine chairman Peter Costello proposed, Fairfax Media chairman Nick Falloon said yes.

Few moments in the 176-year-old newspaper publisher’s famously histrionic past have been as efficient and understated as its end.

Costello’s polite Friday morning conversation on July 6 began the formal discussion of the ­corporate pair’s $4 billion-plus merger.

The two companies had been in informal discussions on and off for years and had worked together closely on their streaming joint venture Stan since 2014.

After four years of going steady, Costello wanted to make the union official.

The Nine team working on “Project Wolfgang” was small and discreet.

Along with the Liberal grandee, there was his 52-year-old chief executive Hugh Marks (who by the end of the year should be running Australia’s new media giant), his chief financial officer Greg Barnes, strategy director Alexi Baker and general counsel ­Rachel Launders.

Advising them was Michael Stock, the new boss of US investment bank Jefferies, who had counselled TPG private equity boss Joel Thickins last year when he was in his old job at Credit ­Suisse.

With Stock in the fledgling Jefferies crew were Craig Haskins and Elliott Rasmussen.

Stock’s years advising Nine stretch back to its ASX float in 2013, when he was at UBS working for his near neighbour in Sydney’s Mosman, Matthew Grounds.

What a coup for Stock at his brand new firm and what a blow for his old boss at Credit Suisse, John Knox.

Well-drilled team

After Costello’s initial Friday call, Falloon assembled a similarly tight team.

Last year’s epic — and wonderfully leaky — unconsummated takeover proposal with private ­equity suitors TPG and Patrick Healy’s Hellman & Friedman, and the subsequent spin-off of Domain, meant the team was well practised at this sort of thing.

Working with Falloon on what they named “Project Galactic” was the soon-to-be redundant Greg Hywood (whose impending golden handshake offers, to use a Hywoodism, “some light at the end of the tightrope”), and his CFO David Housego, strategy boss Dhruv Gupta and company secretary Gail Hambly.

They were advised by the Macquarie team they have kept busy for years, led by Darren Keogh, Michael Milne and Nick Brescia.

Margin Call hears, in another world 18 months ago when Fairfax was a much bigger company than Nine, Falloon’s team had plans to merge with Nine in a deal that would have won them 60-70 per cent of the merged company.

Instead, the once mighty Fairfax has now agreed to a 48.9 per cent stake in the new Nine, such has been the Marks-led resurgence.

The less than three-week journey — not a sniff of which leaked before yesterday’s 8.30am announcement on the ASX — was unusually well mannered for a local media deal.

Goodwill and trust from the Stan business certainly helped.

And with no Packers or other proprietors in the room, the discussions proceeded with little drama.

On Wednesday night, Falloon convened a virtual meeting of the Fairfax board. Costello did the same with his Nine board.

After decades of intrigue and plotting — with some helpful prodding by Google and Facebook — Nine and Fairfax had agreed to be united as one.

Post-politics power

He may privately lament that he never made it to the prime ministerial Lodge, but the merger between Nine and Fairfax makesCostello one of the most successful former politicians in present-day corporate Australia.

Costello will chair what will be one of Australia’s biggest integrated media companies, boasting a leading free-to-air network and some of this country’s most influential mastheads.

The Nine-Fairfax deal will also keep Costello in powerful circles after his likely exit as chairman of the Future Fund’s board of guardians when his term ends next February.

The Turnbull government is already considering potential replacements for the prestigious role, which before Costello was held by now AMP chairman David Murray.

The media merger also provides an elegant exit route for Fairfax boss Hywood.

Costello could do worse than offer Hywood a seat on his Nine board, which presently is far from expert on publishing.

At the end of his CEO stint, Hywood will walk away with at least $6.35 million, taking into account a payment in lieu of notice, plus the value of his ordinary Fairfax shares and the conversion of his performance rights into ordinary shares at the Nine offer price.

That’s all without getting into the value of 9.3 million options he has to buy Fairfax shares.

Marks yesterday said the merger would allow $50m to be extracted over two years.

Total pay to Hywood, his numbers manHousego and Hambly last year cost $4.65m — almost 20 per cent of Marks’s annual savings target.

Easy money.

Bruce out of the loop

It was evening when Nine’s biggest shareholder Bruce Gordon learned about the historic deal.

That wasn’t because the enigmatic 89-year-old media billionaire was uninterested, but because Gordon is in a different timezone in pink-sanded Bermuda (at his place next door to former Italian prime minister Silvio Berlusconi’s bunga-bunga island retreat).

Gordon’s 14.88 per cent stake in Nine — not to mention his roughly 15 per cent stake in regional broadcaster Prime and total ownership of fellow regional WIN — has dealt him into all of Nine’s strategic plans in recent years.

The wily octogenarian always needs to be taken into account. And this endeavour doesn’t look any different.

If the deal had been engineered another way, Gordon could have thrown his weight around in true mogul fashion.

But in the proposed arrangement, only Fairfax shareholders have a vote on the $4bn deal.

One of those is Gordon, but he has a piddling holding of less than 1 per cent.

For all his cross-media positioning, he’ll be watching
on from the sidelines on this one.

Still, we gather his average buy-in to Nine was about $1.40, way below yesterday’s close of $2.26.

So it hasn’t been entirely fruitless, even if he was a bit sore after Nine’s 10.3 per cent fall on the ASX from Wednesday’s close of $2.52 to $2.26 yesterday (a $33.8m hit for the Bermudan).