Raid on Fairfax revealed early

MARK Carnegie and John Singleton hoped to buy up to 4.9 per cent of Fairfax Media before informing the market of their break-up plan, but conservative legal advice forced premature disclosure of the bid.

BusinessDay understands law firm Gilbert + Tobin took an extremely conservative stance because Mr Singleton, who owns 71 per cent of the Macquarie Radio Network, controls a broadcast licence and is therefore subject to tougher disclosure requirements.

Ordinarily, investments of less than 5 per cent of a listed company do not need to be disclosed, but Gilbert + Tobin advised Mr Carnegie and Mr Singleton they should reveal their investment as associates of Gina Rinehart, whose Hancock Prospecting owns 14.99 per cent of Fairfax, owner of the The Age and publisher of The Sydney Morning Herald.

Mr Carnegie and Mr Singleton, investing via the Gutenberg Investments Unit Trust, are expected to disclose on Monday they have a holding of less than 1 per cent of Fairfax - creating an effective 16 per cent combined holding.

Macquarie Radio, which owns Sydney stations 2GB and 2CH, launched an unsuccessful bid last year for Fairfax's radio assets, including Sydney's 2UE and 3AW in Melbourne. Fairfax is believed to have sought about $240 million for the radio assets. Macquarie was apparently prepared to offer 10 times earnings but this was largely debt-funded and included a vendor finance component. In the end, no firm bid was forthcoming and Fairfax withdrew the assets from sale in October 2011. Fairfax Radio earned $27 million before interest, tax and depreciation in 2010-11, falling to $14 million in 2011-12.

In a statement on Friday, Mr Singleton said Gutenberg bought into Fairfax after the company's board closed the door on a sale or joint venture of its radio assets to Macquarie Radio Network. "For the amount of money I was prepared to pay for the radio assets of Fairfax, I could buy a significant amount of all the assets of Fairfax at a far lower price-to-earnings multiple. Hence, with my preferred direct route closed, I have decided to pursue another path."

Mr Carnegie's investment in Gutenberg is via his $130 million Companion Fund.

Announcement of the Gutenberg stake could lend further momentum to Fairfax shares, which have rallied more than 35 per cent from their late-October low of 35¢. Fairfax closed on Friday at 47.5¢.

Media analyst Peter Cox, who ran unsuccessfully for the Fairfax board, told the ABC the Gutenberg play was not surprising. "Singleton was very upset when Fairfax would not sell the radio stations to him, which he offered $200 million for, which is probably a lot more than what they would get for the radio stations today, so Singleton is now moving in concert, if you like, with Gina Rinehart to have more effect at Fairfax," he said.