RICH PICKINGS: Bad news

Late last week, Fairfax Media's major shareholder John B. Fairfax was forced to spend about $170 million to unravel a margin loan he had taken out over part of his 14 per cent stake in Fairfax, publisher of The Age, The Sydney Morning Herald and The Australian Financial Review.

It's yet more evidence that John B. Fairfax's supposedly triumphant return to the company that bears his name has become a very expensive exercise.

The Fairfax family has been involved with Fairfax Media (formerly known as John Fairfax Holdings) since 1841, but John and his brother Timothy were forced to leave the company in 1987, when their cousin Warwick Fairfax privatised the company. John and Timothy bought the controlling shareholding in Rural Press from Warwick, who was forced to sell assets to pay off debt and would later send the company into receivership.

In December 2006, Fairfax Media announced a merger with Rural Press. John B. Fairfax and his oldest son Nicholas joined the board and the Fairfax family's investment company Marinya Media emerged with a stake of about 14 per cent. John B. now owns all of Marinya, after buying out his brother Timothy and his sisters Ruth and Sally earlier this year, using the money from the now-repaid margin loan.

John B. Fairfax has a reputation as a hard-nosed businessman who ran a very tight ship at the cost-conscious Rural Press. But he also seems himself as an old-fashioned media proprietor. "Publishing newspapers, whether in metropolitan Sydney or on Kangaroo Island ... is about serving communities,” he told Rural Press shareholders last April before they approved the deal.

But John B. Fairfax's return to the family fold has coincided with a sharp fall in Fairfax's share price. On April 19, the day Rural Press shareholders approved the merger, Fairfax shares were at $5.12. Today the shares sit around $2.70. As a result, John B. Fairfax's wealth has taken huge hit. His stake was worth $1.002 billion at the start of the year, but has since shrunk by $415 million to $587 million.

To date, John B. Fairfax's role has been as a non-executive director, but there are calls to make him chairman at the expense of incumbent Ron Walker. Morgan Stanley analyst Andrew McLeod recently issued a 51-page research note debating this move and argued John B. Fairfax could bring a more conservative approach to gearing levels and bring some of Rural Press's strict cost management to Fairfax Media.

At the very least, John B. Fairfax will have plenty of financial incentive to turn things around.

Of course, John B. Fairfax is not the only media mogul to take a bath this year.

Despite having Australia's most watched television network, Seven Network boss Kerry Stokes has watched the value of his stake fall from $1.2 billion to $722 million after a 39 per cent plunge in the company's share price.

Rupert Murdoch has also had a bad year, with shares in News Corp falling around 32 per cent so far this year. The value of the Murdoch's family shareholdings have fallen from around $18 billion to around $12 billion.

The value of James Packer's 25 per cent stake in Consolidated Media Holdings, which holds the media assets of Publishing & Broadcasting Limited including the Nine Network, has shrunk 24 per cent or $242 million since the start of the year and is now worth $764 million.

Packer has seen the decline of the media industry coming for some time. In October 2006 he sold a 50 per cent stake in PBL's media assets to private equity firm CVC Asia Pacific and then managed to take $785 million in cash last year when he split PBL into the media group Consolidated Holdings and the casino group Crown Limited.

Packer obviously doesn't think much of the outlook for the media sector – last week he sold a 25 per cent stake in Hollywood film studio New Regency Productions to billionaire Arnon Milchan for around $350 million.

But not everyone is bearish on the media sector. Bruce Gordon, who owns the private media group WIN Corporation, has spent $16.9 million since May buying 10.6 million shares in Ten Network. That takes WIN's stake to 13 per cent, worth about $173 million.