Media companies dumping their debt
Rupert Murdoch started the trend in June when he announced that the publishing side of the News Corp spin-off (which will retain the name) will be debt-free to give the challenged business a leg-up.
He will also sneak in News Corp's half-share of pay TV provider Foxtel to bolster the business, but that's another story.
Fairfax Media, publisher of the Herald, is taking another route - selling the remainder of its prized digital business, New Zealand's dominant online auction group Trade Me - to pay down its debt to negligible levels.
Fairfax had net debt of $815 million as of June 30 - excluding Trade Me's debt - and the expected $600 million sale will add to the $80 million raised from the sale of a US business last month.
In a tough environment, Fairfax will have the balance sheet to support its restructure and look at further acquisitions in the digital space that fit its needs. A prized bauble it may have been but the truth is that Trade Me is not an integral part of Fairfax's media business - as many potential predators are no doubt aware - and its current price is irresistible. The company trades somewhere above 20 times its forecast earnings for this year, Fairfax is trading around 8.5, according to Bloomberg data.
If selling an asset such as Trade Me in the current environment sounds like a tough decision, spare a thought for Ten.
The embattled broadcaster has been forced to undertake its second capital raising in six months - with its stock trading at record lows - in order to wipe out its debt worries. What remains are concerns about its operational performance.
Questions are also being raised about the need for APN News & Media to follow suit after a massive profit downgrade last week raised questions about its ability to remain within its debt covenants.
Nine Entertainment may not be getting the clean balance sheet it was hoping for when a capital restructure was announced in October but as a private company protected from an unforgiving sharemarket its need probably isn't as great as the listed stocks.
Frequently Asked Questions about this Article…
Many Australian media companies are reducing debt because advertising revenues remain weak—what the article calls the "advertising doldrums"—and a strong balance sheet gives them resilience to weather prolonged market softness and fund restructures or digital opportunities.
Rupert Murdoch announced that the publishing side of the News Corp spin-off will be debt-free, a move intended to give the challenged publishing business a leg-up as it faces tough market conditions.
Fairfax Media plans to sell the remainder of its digital asset Trade Me, with the expected sale worth about $600 million. That, together with roughly $80 million raised from a recent US business sale, is aimed at cutting Fairfax's net debt (which was $815 million at June 30, excluding Trade Me's debt) down to negligible levels.
The article notes Trade Me isn’t integral to Fairfax’s core media business and is trading at a premium—around or above 20 times forecast earnings—making the current price irresistible. Selling it lets Fairfax eliminate debt and strengthen its balance sheet for restructuring and targeted digital acquisitions.
Ten has completed a second capital raising in six months to wipe out its debt worries after its stock hit record lows. Investors should be aware that while the recapitalisation addresses debt, concerns remain about Ten’s underlying operational performance.
APN faces heightened scrutiny after a massive profit downgrade, which raised questions about its ability to remain within its debt covenants. That makes its debt position a potential risk for investors to monitor.
Nine Entertainment did announce a capital restructure in October, but as a private company it’s less exposed to an unforgiving sharemarket. The article suggests Nine may not achieve the perfectly clean balance sheet it hoped for, but its need for immediate market relief is not as great as that of listed peers.
Everyday investors should note that in a tough advertising environment, companies with stronger balance sheets are better positioned to restructure, make strategic digital acquisitions and survive downturns. However, debt reduction alone isn’t a cure—investors should also watch operational performance, valuation metrics and covenant risks highlighted in the article.
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