Fairfax takeover by Nine: proud history in the distant past
The disappearance of the hallowed Fairfax name after 177 years is a gripping story of mismanagement, lack of awareness and hubris.
The disappearance of the hallowed Fairfax name after 177 years of publishing in Australia is a gripping story of mismanagement, lack of awareness, hubris and a fatal reluctance to adapt to tectonic shifts in technology and social values.
But for the Fairfax family, yesterday’s merger with Nine Entertainment Co is merely a whimpering footnote to history. Their birthright was trashed nearly 30 years ago.
The family business adage of rags to riches to rags in three generations did not apply to the Fairfaxes. It took five generations.
Young Warwick Fairfax’s harebrained, ill-timed and ultimately failed attempt in 1987 to seize control of the company that would have come to him by succession marked the end of Fairfax family domination. By 1990 Warwick’s debt crisis overwhelmed him and the once mighty company was put into ignominious receivership.
As Fairfax flagship The Sydney Morning Herald ruefully noted in an editorial: “It has taken Warwick Geoffrey Oswald Fairfax three years and three days to blow a family inheritance worth $500 million.” That embarrassment was not enough to deter his cousin, John B. Fairfax, from engineering a merger between Fairfax Media and his regional publishing company Rural Press in 2007.
He was hailed as a Fairfax returning to the board of a national publishing powerhouse with a combined value of $9 billion. Four years later John B. threw in the towel and sold his holding for a $600m loss.
Yesterday’s merger announcement put the combined value of the proposed new Nine-Fairfax entity at $4.2bn, with junior partner Fairfax Media contributing just over $2bn — a 21 per cent increase on its pre-announcement market capitalisation of $1.77bn.
The merger, or takeover, certainly increases the scale of both Nine and Fairfax Media and may herald a fresh era of growth, expansion and influence, as its architects suggest, but any new dawn will be without the Fairfax name.
The original John Fairfax would be rolling in his grave.
But at least he would have understood the transitory nature of good fortune.
He was bankrupt when he came to Australia in 1838 from Warwickshire in England. As a printer, he acquired an interest in the newspaper The Leamington Chronicle and Warwickshire Reporter and published a letter criticising a local solicitor. In an echo of today’s practices, the solicitor sued for defamation — and although Fairfax won the case, and won again on appeal, the costs forced him into insolvency.
He set off for Australia and arrived with £5 in his pocket.
He worked as a compositor and librarian until a friendship with journalist Charles Kemp led him into a partnership to buy The Sydney Herald for £10,000, which they borrowed and repaid over time. In 1842 they renamed their paper The Sydney Morning Herald, and the pair prospered until Kemp retired and John Fairfax became the sole owner.
In 1852 he visited England to seek out his old creditors and repaid each one in full and with interest.
The gold rushes of the 1850s sharply boosted population and profits for Fairfax and The Sydney Morning Herald’s conservative style enhanced its reputation to the extent that John Fairfax claimed by the 1860s it had the largest circulation of any newspaper in the colonies.
James Reading Fairfax joined John Fairfax and Sons in 1856 and became heir apparent following the death of his brother in a horseriding accident.
He succeeded his father in 1877 and became a pillar of the NSW business establishment.
Various members of the Fairfax family sat on the company’s board or were taken in as partners during the next half-century, but it was James Oswald Fairfax who took on the stewardship of the company until 1930, when his only son, Warwick Oswald Fairfax, took over as managing director.
“Sir Warwick was a born-to-rule, old-style patrician,” says Martin Dougherty, a former managing director (editorial) of the Fairfax group. “He believed the Fairfaxes were entitled to rule and nobody had the right to interrupt them — or their leisure activities.
“In a way he was a lovely old bloke, but he regarded himself as royalty and was grand beyond belief — perhaps because of his upbringing as an only child.”
By good fortune rather than astute management, Sir Warwick presided over a period of great growth after World War II. The company was then being steered by legendary hard-as-nails executive Rupert “Rags” Henderson, who convinced Sir Warwick that he should cede his position as controlling shareholder to publicly list the company to raise the capital required for speedy expansion.
A major area was television, and by the 1970s the Fairfax empire looked impregnable, with its TV stations, Macquarie radio network, newsprint mills, magazines and the mighty Sydney Morning Herald and The Age, both of which frequently ran to 200 or more broadsheet pages filled with “river-of-gold” classified advertising on Saturdays.
Sir Warwick’s son James Oswald Fairfax said of his father: “His contribution to the Fairfax company, which expanded so markedly in his lifetime, was perhaps the greatest of any of the Fairfaxes since the company’s founder.”
In 1987 the wheel wobbled. Henderson was gone and the company was led by Greg Gardiner, often in conflict with the journalists and editors, led by Max Walsh and Max Suich, who had amassed great power within the Fairfax fortress.
Within days of Paul Keating getting parliamentary approval for his media reform laws, designed to enhance diversity by forcing proprietors to be “queens of screen or princes of print”, Rupert Murdoch made a bid for the Herald and Weekly Times group in Melbourne.
A panicked Fairfax responded by launching a costly defence of the HWT that ultimately forced it to sell its radio and TV businesses. This was in a period when TV licences were being traded almost daily and saw the emergence of Alan Bond, Christopher Skase and Frank Lowy as short-lived media moguls.
Fairfax was left reeling after this tumult and Sir Warwick’s son, young Warwick, encouraged by his mother, Lady Mary Fairfax, saw his opportunity. He borrowed $1.7bn to bid for all the shares held by members of his family.
Within days of announcing his audacious bid to acquire what would have come to him in time, he was hit by the stockmarket crash of 1987. Instead of abandoning the bid, young Warwick pressed on, encouraged by the charlatan investment banker Laurie Connell, who was interested only in collecting his breathtaking $100m fee.
Young Warwick took the company private but, crippled with debt, he called in the receivers in 1990 and retired into obscurity in the US. It was a shattering end for the Fairfax dynasty, but the name lingered on.
The mighty mastheads of The Sydney Morning Herald and The Age continued to grow until the mid-90s, when the first indications of the turmoil ahead were noted. A new invention called the internet was being hailed as an alternative to the classified gold of car sales, real estate and employment ads.
Successive managements failed to appreciate the nature of the challenge or to act on it. Fairfax chief executive Fred Hilmer was alert to the threat and set up a special division of the company, called f2, to compete in the digital world while the flagships sailed merrily on with their stranglehold on classified advertising.
But that was a flawed strategy because upstart new companies such as realestate.com.au, Seek and Carsales were eating the mastheads’ lunch while ignoring the efforts of f2 to get a slice of their pie.
This inability to see the dangers or act to prevent them flowed into the period when former Woolworths head Roger Corbett was chairman of the board. Former Sydney Morning Herald editor Eric Beecher tells of an encounter in 2008 when he presented a report to the board about Fairfax’s future.
“I sketched out what I described as a ‘catastrophe scenario’ under which the SMH and Age would lose much of their classified advertising in coming years,” Beecher says.
“After listening to my prognosis that the company faced a potential collapse of its traditional business model, the Fairfax board studiously ignored my plea to implement overlapping strategies as insurance against that possibility.
“One director, in particular, became quite agitated about what I was saying. ‘I don’t ever want anyone coming into this boardroom again,’ he told his colleagues as he held up a copy of one of Fairfax’s hefty Saturday papers, ‘and telling us that people will buy houses or cars, or look for jobs, without this’.
“He then dropped the lump of newsprint on to the boardroom table with a thud. That board member was Roger Corbett, soon the chairman of Fairfax.”
In 2007, John Fairfax Holdings merged with Rural Press and became Fairfax Media. In 2011 former journalist and editor Greg Hywood took the reins as managing director and embarked on a savage series of cost-cutting moves that led to the loss of more than 2000 jobs and the closure of major printing plants.
Last year two private equity companies made indicative bids for Fairfax that valued the business at around $2.9bn. Both walked away after the bidders looked at the books.
With a sale/merger/takeover price of about $2.1bn established by yesterday’s move, comparisons are irresistible. When Murdoch launched The Australian in July 1964 his company, then known as News Limited, was worth about $35 million. Fairfax was five times as big.
Murdoch expanded overseas and used the profits of his newspapers to build a global monolith of free-to-air television, satellite and cable TV services, film studios, book publishing and other content-creating industries.
Parts of that conglomerate are now being sold to the Disney organisation in the US for more than $70bn and his 39 per cent owned Sky TV in Britain is subject to a bidding war that could reach $40bn.
The Fairfax family and its independent boards chose never to pursue opportunities available to them. Comparisons may be odious, but facts are facts.
The potential of a merger between Nine and Fairfax has been apparent for the past five years. While Keating’s media laws prevented any move to merge, the two companies set up a joint venture to launch the online streaming service Stan, which is the major local bulwark against Netflix in the emerging streaming sector.
Last year, after much procrastination, the Turnbull government accepted the argument that Australian media companies were unable to compete with international giants such as Google and Facebook, which were drawing away vast amounts of their revenue.
The removal of the restrictions enabled yesterday’s move.
Chris Anderson, a former Fairfax editor and senior executive, says he believes the merger is opportunistic and a good move for Nine.
“As a former editor I am saddened by the demise of the Fairfax name,” he says.
“It’s a shame, but the good thing is that there is now a much more diverse group able to prop up the print side of the business.
“But for how long? The jury is out on that.”
