Gina’s Fairfax options

There are no winners from Fairfax Media’s savage restructure and the accompanying loss of 1,900 jobs over the next three years.

The company’s staff certainly don’t win – it’s never good to see people you used to work with at risk of losing their jobs.

Investors don’t win – the restructure has only served to underline the extraordinarily difficult task the company has ahead of it.

Readers don’t win – many will be forced to pay for something they currently view online for free.

And Gina Rinehart doesn’t win either – despite the fact she has now moved to a stake of 18.76% and seems prepared to take her shareholding to 19.9%, just below the threshold at which she needs to make a takeover.

Rinehart is yet to comment on Fairfax’s restructure (presumably, she would support it) but she has thrown another grenade into the Fairfax camp by requesting three board seats (including the appointment of her friend and sometimes spokesman Jack Cowin as an “independent” director) and the ability to get involved in editorial decision-making.

Reports suggest she will get two board seats; but chairman Roger Corbett is standing firm on his insistence that Rinehart abide the unwritten boardroom rule that directors do not get involved in editorial decision-making.

How Rinehart reacts to Corbett’s offer – and indeed the news of the restructure – will be fascinating.

Here are a few of her options:

Accept Corbett’s offer of two board seats and wield influence from there

While most commentators agree the Fairfax restructure has been a long time coming, the restructure had underlined how much trouble this business (and the traditional media sector) is in. That wouldn’t have escaped Rinehart, who must now ask herself a difficult question: How willing is she to take on the management of a company in decline, and one undergoing a large, difficult and divisive restructure? It might be best to get two seats on the board and see what influence she can have from that position. She’ll get a better sense of what’s happening inside the company and can then decide whether she wants to get a bigger stake or buy the company outright.

Creep up the register and demand more board seats

Rinehart has to launch a takeover if she gets more than 20% of Fairfax, but she could get to 19.9% and then take advantage of rules that allow you to “creep” up the share register of a public company, buying up to 3% of a company every six months without making a takeover bid. Rinehart could get to almost 26% of Fairfax in a year, allowing her to demand that third board seat and gain even more control over the board and, potentially, the editorial direction of the company.

Buy Fairfax outright, take control

The restructure of Fairfax will likely diminish its reach, particularly as paywalls go up around previously free digital coverage, which will hurt readership. If Rinehart wants maximum influence, she might be best to buy the company now. But, again, does she really have the desire to run a struggling business fraught with complexities and in desperate need of restructuring? Even fighting your own kids in court might sound more palatable than that.

Form an alliance to buy Fairfax and break it up

This option would take some work, but it might suit Rinehart best. Presuming her main interest is getting editorial control of Fairfax’s metro mastheads, Rinehart could team up with private equity players or other investors to take control of Fairfax and break it up. The radio business goes to her old mate John Singleton, the rest of the New Zealand auction site Trade Me is sold off, the rural media assets are broken up and Gina is left with the metro division. Keeping this business profitable wouldn’t be easy, but it would be a hell of a lot simpler than running the entire conglomerate.

If I had to make an educated guess, I would suggest that Gina accepts her two board spots and keeps creeping up the share registry, all the while looking for more board control.

What Gina has up her sleeve is something Fairfax management does not: Time.

She can afford to get on the board and see what influence she can wield before making her next move. She can wait to see if she can get backers for a break-up. And she can take some time to think about whether she really, really, really wants to run a media business.

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