APN debt unlikely to deter Indo bid for Fairfax

Higher debt at APN after its €690 million (£543 million) takeover of Wilson & Horton will not necessarily prevent it tabling a bid for Australia's biggest newspaper publisher, John Fairfax, if the opportunity arises, according to Independent News & Media's finance director, Mr James Parkinson.

Independent is selling its wholly-owned Wilson & Horton subsidiary to APN, in which it holds a 40 per cent interest. The fundraising for the acquisition will, however, see Independent consolidate its position as APN's largest shareholder by increasing its stake in the Australian media group to 45 per cent.

APN still has a number of obstacles to overcome before it can complete the takeover of Wilson & Horton. Shareholders - other than Independent - will have to vote in favour of the deal at a special meeting. In addition, because the takeover is deemed a related party transaction, it must be given the go-ahead by an independent outside party.

It is understood, however, that independent consultant Arthur Andersen has said that the €690 million being offered by APN falls within its range of valuations for Wilson & Horton. "As it's a related party transaction, we were keen to do something that would be fair to all parties," Mr Parkinson said.

APN and its bankers and stockbrokers have been doing the rounds of the group's institutional shareholders to get their support for the takeover. The initial reaction is understood to be broadly positive, with the multiple of 10.2 times of forecasted 2001 earnings being lower than Fairfax's EBITDA multiple of 12.2 - and marginally higher than the 10 times EBITDA multiple at West Australian Newspapers.

An explanatory memorandum shows that APN will be a heavily geared company after the Wilson & Horton takeover is completed.

When the 250 million Australian dollars (€139.4 million) of convertible loan notes are included, APN will have a 2002 forecast gearing of 88 per cent and interest covered 3.2 times by operating profits - a tight level of interest cover even for a company like APN, which generates sizeable free cash.

Mr Parkinson said that APN's tight balance sheet would not necessarily inhibit it from bidding for Fairfax if the opportunity presents itself, even though the enlarged APN will be substantially smaller than Fairfax - with a market capitalisation of Aus$1.5 billion against Fairfax's current capitalisation of Aus$3.5 billion. "A lot would depend on how it was structured. With the proper structure you could do something," said Mr Parkinson. He added, however, that there are opportunities other than Fairfax in the Australian market.

But any ambition that APN and Independent might harbour to buy Fairfax - Australia's main national newspaper publisher - will depend on changes to Australia's regulations on foreign ownership of newspapers and also the regulations governing cross-ownership of newspaper and radio assets.

The outgoing Liberal administration has hinted that it favours easing these regulations.