News exits Fairfax, pre-merger

NEWS Corporation has sold its 7.5 per cent stake in Fairfax Media to a large group of institutions, just two days before the merger between Fairfax and Rural Press formally proceeds.

NEWS Corporation has sold its 7.5 per cent stake in Fairfax Media to a large group of institutions, just two days before the merger between Fairfax and Rural Press formally proceeds.

The sale ends a period of speculation over Fairfax's future which began in October last year when News took its stake in the company amid talk that Fairfax might be "carved up".

It is understood News's sale of its Fairfax stake at $5.07 a share was completed by the time the share market opened yesterday, with a call believed to have been made to the dealing desk of broking firm Goldman Sachs JB Were about 90 minutes before the start of trade yesterday.

It comes a week after News launched a $US5 billion ($6.1 billion) bid for Dow Jones, owner of the Dow Jones index and news wire as well as the US's second biggest newspaper, The Wall Street Journal.

The call to Goldman triggered calls to a number of institutions over the next hour or so. The stake was then sold to a broad array of Australian and international institutions.

In a statement to the stock exchange yesterday, Fairfax chairman Ron Walker confirmed that the deal on the 75 million shares had been done. Mr Walker said the companies would "continue to work together, where appropriate, to strengthen the overall newspaper publishing industry in Australia".

A spokesman for News's Australian arm, News Limited, publisher of The Australian, said the deal had been "profitable" for the group but did not specify the company's gain.

However, a source close to the deal said News Corp, as a US-domiciled company, had made money on the transaction because the shares had been bought with US dollars.

The source said News had made a US21c-a-share profit on the deal. Fairfax had been valued at $US3.95 a share when News bought the stock in October last year, compared with its valuation of $US4.16 on yesterday's currency comparison.

The Australian dollar was trading at US75c when the shares were bought in October and closed yesterday at US82.5c.

News has also received a fully franked dividend on its stake during its period of ownership.

News chairman Rupert Murdoch said soon after the purchase was made: "It's just a strategic holding. We don't have any particular plans for it - certainly no plans to take over Fairfax."

Ross Barker, managing director of Australian Foundation Investment Co, one of Fairfax's top 20 shareholders, said of Mr Murdoch's move to sell the stake yesterday: "I can't comment on his motives, but the reasons that were there (to own Fairfax shares) when he originally took it up have changed. He obviously thinks it's not as necessary now as it was six months ago."

Mr Barker said he believed the fact that the Fairfax/Rural Press merger was now certain to proceed could have been a factor in the decision to sell the Fairfax stake, as it meant the company was not in play, at least in the short term.

Mr Murdoch's move to leave the Fairfax share register follows a move by Kerry Stokes's Seven Network to let a possible Fairfax play lapse.

It is understood Seven held the right to buy shares in Fairfax through a derivative product it picked up last year. However, this right was not exercised and the derivative was allowed to lapse.