Rinehart's Fairfax collision course

SmartCompany

The idea that Gina Rinehart is worth somewhere around the $29 billion ascribed to her by BRW magazine last week is fascinating on so many levels, but it raises a basic question: What does it mean to have so much wealth residing in the hands of one person?

Rinehart can have virtually anything she wants:

– She could buy all but about 40 companies on the ASX.
– She could presumably affect the outcomes of elections with an avalanche of political donations.
– She could help solve societal problems with the signing of some cheques.
– She could pour money into scientific research and go a long way to curing a disease.
– She could even possibly end poverty in a small city (or even a relatively large one) with enough direct handouts.

Rinehart has shown no inclination to do any of this, but the sheer size of her fortune makes it fascinating to think about. There are richer people in the world to be sure, but they live in much larger countries than Australia. Rinehart's shadow really does loom over our economy.

So imagine then for a moment being in the shoes of Fairfax Media chairman Roger Corbett. You're a retailer by training, but for reasons best known only to yourself you find yourself as chair of one of the most important media companies in the country.

Your revenue is under pressure, your share price won't stop falling, you're expected to start cutting jobs.

And now Gina's got you firmly in her sights. What the hell do you do?

Yesterday, Rinehart confirmed she had increased her stake in Fairfax Media slightly to above 13 per cent, just days after Corbett and his board decided against Rinehart's request for two board seats and instead appointed former auditor James Millar to the Fairfax board.

Rinehart is clearly unhappy and Corbett – the very successful former chief executives of Woolworths – is in for some serious attention.

"There are questions to be raised concerning the current chairmanship that has presided over both an approximately 60 per cent loss in share market value and continuous loss of circulation of all [its] major mastheads, which in turn [affects] revenue," Rinehart said in a statement, ironically, to Fairfax.

"Answers need to be given as to how the chairman will address this in the interests of all shareholders, rather than merely hoping for improvements in circulation, revenue and share price or perhaps trying to blame ... industry conditions."

Reasonable questions really and ones which many shareholders are asking of Corbett and his board. And, of course, Corbett's decision to knock back Rinehart's board push means he has to take this sort of the thing on the chin. He could have had Rinehart inside the tent, but now he will have to deal with her lobbing grenades from outside.

The question is: Where to from here?

For her part, Rinehart won't openly declare her intentions: "It is too early to say if [Hancock Prospecting – the company through which she owns her stake] will hold more than 13 per cent shares in Fairfax or sell them or find some other satisfactory resolution."

Or in other words: Maybe I will buy a few more shares, maybe I won't. Maybe I'll buy the whole damn company.

Corbett position's is difficult. Fairfax is widely anticipated to announce job cuts this week and there was even speculation (not strong speculation, it must be said) that the board is mulling abandoning the print versions of the Monday to Friday newspapers in Melbourne and Sydney.

These sort of cutbacks would not fill investors with confidence in Fairfax's long-term future, even if the share price rose initially in response to cost cutting.

The further the share price falls, the more Rinehart will be able to turn up the heat on Corbett. And, if she really wants control, a share price fall would make a full takeover even more attractive.

It's hard to know what the tipping point is. Perhaps 55 cents? Maybe 50 cents? Rinehart would anticipate a wall of opposition from all corners if she did make a bid (no doubt led by Wayne Swan) but what sort of defence would Corbett be able to marshal?

It's all guesswork of course. Maybe Rinehart doesn't want the hassle of owning a media company that would probably need further financial support. Maybe Corbett can find a space on the board for a Rinehart representative and bring the billionaire inside the tent.

It's hard to say exactly what will happen, but Rinehart and Fairfax do seem to be on a collision course. It's not at all ridiculous to think that we'll soon be asking ourselves what it means to have one of the world's richest people controlling one of our most historically important media companies.

This article first appeared on SmartCompany on May 29. Republished with permission.