FAIRFAX Media considered a merger or breakup of assets before ruling it out, chairman Roger Corbett told the company’s annual general meeting this week.
The company’s strategic review carried out by Bain & Co, McKinsey & Company and UBS considered breaking up Fairfax and demerging the Metro Media business into a separately listed asset, but concluded that an integrated multiplatform strategy would deliver the best results.
“The analysis showed that it was the wrong time to breakup our business,” Mr Corbett said. “Pursuit of this option would not have added to shareholder value and would undermine future value creation.”
Both Mr Corbett and chief executive Greg Hywood acknowledged the company’s high drops in share price, blaming structural changes of audiences and advertising dollars shifting from print to online and a difficult cyclical environment of low consumer confidence.
“We are acutely aware of shareholder anxiety over the state of the Fairfax Media share price. It is a very real concern that is shared by your board,” Mr Corbett told shareholders.
The company’s share price has fallen more than 54 percent since last year’s AGM from around 87 cents to close at 40 cents yesterday, while intangible assets were written down A$2.7 billion at the end of the 2012 financial year.
“With no evidence at June of a macro economic recovery in the medium term, we had no choice but to reflect prevailing conditions in the calculations,” Mr Corbett said.
The board will continue to review asset value at the end of each reporting period and there could be further impairment or impairments could be reversed, Mr Corbett said.
“It is extremely difficult to assess how much of the weakness is cyclical and how much relates to structural change,” the former Woolworths CEO said.
“However, your board and management believe that it is prudent to make decisions on the assumption that a significant proportion of current weakness in the trading environment relates to structural change.”
Mr Corbett described the company’s earnings as a “sound performance” in the circumstances.
Mr Hywood agreed that despite the short term pain of structural changes, the future is optimistic.
“At Fairfax Media we have a clear strategy to negotiate our way through this perfect storm of cyclical weakness and structural change,” Mr Hywood said.
“The key to this is that we are embracing change. Not small change. Not incremental change. But big, sweeping structural change that is transforming your company from a legacy newspaper company into a multi-platform media company of the modern age.”
Changes include cutting 1900 or 20 percent of staff and closing the Chullora and Tullamarine print centres which were “build for a world of monopoly print classified that no longer exists”.
Moving metro printing to regional centres will cost 35 percent less than the current A$500 million, Mr Hywood said.
The Sydney Morning Herald and The Age will also move from broadsheet to compact with a metered pay wall for websites next year.
This will provide a solution for “the most structurally challenged part of our business, our metropolitan publications,” Mr Hywood said.
“The structural challenge of declining print revenues facing the metro business are significant and long lasting. The steps we are taking are focused on stabilising earnings whilst we reshape the business and position it for growth.”
Mr Hywood also signalled that the company foresees the end of printed newspapers and is preparing for that time.
“It could be in three years, or five or 10 or 15 years – when print publications in our metropolitan businesses could become unprofitable and we move to a digital only model.”
Mr Hywood said that the company would not go digital-only just because it becomes profitable. “Let me reiterate: we will produce papers for so long as there is a profitable demand for them.”
The SMH and The Age in the 21st century are “mastheads rather than newspapers”, according to Mr Hywood.
“Their future will be predominantly digital rather than print. And we will manage the business accordingly,” he said.
“This means we no longer measure a newspaper’s success from its circulation, but from its profitability.”
While it will take time to reshape the metro business, Mr Hywood stated “we will get there”.