Special edition: Fortress Fairfax

Who'd have guessed it? Everyone is looking at Murdoch and Stokes and then the Fairfax group surprises everyone by moving first.

I have to say I never thought Fairfax was such a big target; it is in a declining industry and now the newspaper component of the business has got bigger. Fairfax, a $5 billion company, will digest the $2 billion regional newspaper group Rural Press with the result that the company will be more reliant on newspapers for its revenue. (Online revenue will fall from 39% of Fairfax’s total to 30%).

The deal has many ramifications but what does it mean for the takeover premiums?

The first thing to say is that the deal will very likely go through and it will make Fairfax a much more difficult target. Moreover, it can go ahead under current laws. Most of the players who want Fairfax '” Kerry Stokes’ Seven Network or Rupert Murdoch's News Corporation '” cannot move on Fairfax until March next year when the media laws are due change. However, the deal with Rural Press will be done by then.

Having said that, the media consolidation game is never over and as I said earlier you can be very surprised by the way things turn.

A second repercussion to this deal is that a move on Southern Cross by Rural Press is probably less likely now. If you think Fairfax was riding high with a takeover premium in its share price of 21 times earnings, remember Southern Cross has been closer to 30 times.

The Fairfax deal also means that Rupert Murdoch's 7.5% stake and Stokes' holding of about 5% will both be diluted: they will have to buy more shares to retain the same percentage shareholding. You have to think that anyone, including rival tycoons, looking at the premiums floating around in the Fairfax-Rural Press merger will say this is not a cheap deal.

Still, the takeover premium in Fairfax is starting to slide; it fell 4% in the hours following the Rural Press announcement. This is because this deal cannot be stopped by Murdoch or Stokes; they cannot move under current law.

Above and beyond restrictions on rival tycoons, the competition watchdog, the ACCC, is likely to give the green light on the regulatory front. After all, Rural Press is associated with John B Fairfax. Many of the assets now in Rural Press were part of Fairfax less than 20 years ago; in many ways it is a reconsolidation.

Still, if Fairfax has waned as a target, this deal pumps up the chances of West Australian Newspapers changing hands. One possibility is that Stokes, with 14.9% of WAN already under his control, will consider Fairfax too big and refocus his attentions on the Perth newspaper company. It's no coincidence WAN rose 1.4% following the announcement of the Fairfax–Rural Press deal.