Fairfax Media is worth more split up and its major shareholder Gina Rinehart should launch a takeover bid now so her mining interests can benefit from shifting the group's editorial positions ahead of next year's federal election, according to a media analyst argues.
Roger Colman, an analyst with CCZ Equities and a well-known critic of the media group, declared Fairfax to be a "break-up proposition".
Mrs Rinehart's private company Hancock Prospecting, which already owns 15 per cent of Fairfax, "needs to launch a partial bid now", to "position" the mastheads "well before the October 2013 election," he added.
Mr Colman made the comments as his firm upgraded its view of Fairfax to a "buy" for the first time in six years. He had advocated selling the stock since February 2007.
Shares of Fairfax, publisher of this website, were recently trading 1 cent lower at 51, marginally above last week's record low of 49.5 cents.
Mr Coleman said Fairfax's clout would be one attraction for a billionaire looking to influence the wider public come election time.
"Fairfax and News Corporation media determine around one out of three, perhaps one out of two Australian elections," he said.
"Having the Coalition win the 2013 election, especially the Senate, ensures the removal of the Carbon Tax, 457 visa and MRRT schemes," Mr Coleman said. "This may be worth billions to Hancock Prospecting."
"The cost of buying another 20 per cent of Fairfax ... at say 70 cents per share ... is $330 million," he calculated. "$5 billion of resource assets upside at a cost of $330 million is a 15 times return."
However Hancock Prospecting, in a letter to Fairfax shareholders received yesterday, said the company had not sought control of the media house.
Mr Colman also weighed into the issue of editorial independence, saying the charter "indicates that whatever the board and control structure, the journalists were responsible for the output, which the readers then voted against with their wallets."
"The journalists have therefore failed Fairfax in Sydney and Melbourne markets," he said. "Hancock would seek to make the editorial direction and qualities of Fairfax a decision for the board."
He pointed out that in 1992, 52 per cent of Sydney weekday newspaper buyers opted for the Daily Telegraph, and 48 per cent for The Sydney Morning Herald, but by this year the difference was 65 per cent for The Telegraph and 35 per cent for the Herald.
In Melbourne, however, the weekday Age had increased its market share against the Herald Sun from 23 per cent to 26 per cent over that time, although it lost market share on the weekend.
Mr Colman argues that in the last two decades the two newspapers have pursued a "left-leaning" editorial position "when its wealthy readers (the ones who are still willing to read newspapers and pay) are centre/right".
Mr Colman argues that once the company completes its overhaul, that in the medium to long term, the company would be worth around $1.00-$1.10 a share.
"Rising valuations in the stand along dot.com businesses, and merging radio with Macquarie Radio Network, completely offset structural declines in the newspapers."
If the company were broken up, Mr Colman argues the online mastheads are worth $690 million, or 29 cents a share "and rising. "...The declining assets (newspapers) can be well managed for free cash flow. They could even start increasing in value from FY2014) as is occurring in some US and UK newspapers".
Fairfax's half-owned New Zealand online auction site, Trade Me and other assets were worth about 52 cents a share, he added.
Its printed metropolitan mastheads, including The Age and The Sydney Morning Herald, will make losses of about $30 million a year for Fairfax, CCZ forecasts, which "equals the $30 million marketing/cross promotional value of maintaining the Fairfax news sites in the #1 and #3 positions for supporting Fairfax transactional and display online sites."
CCZ forecast that revenue for Fairfax's metro group would fall 13-18 per cent for the next three years.