TECHNOLOGY SPECTATOR: Fairfax breathing room?

In this week's Tech Deals Fairfax's decision to sell down its stake in Trade Me should give the company a little room to move, while Microsoft is set to lift the lid on its very own tablet.

Technology Spectator

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.

Fairfax cashes in Trade Me chips

It’s all hands on deck at Fairfax Media as the company’s board battens down the hatches. While the company has flagged the loss of 1900 jobs over the next three years and a host of other initiatives as part of its restructure, it has moved to immediately beef up its balance sheet by selling a stake in arguably its best asset, Trade Me.

Fairfax bought the New Zealand online auction house for $650 million in 2006 and last year sold 34 per cent of the group through an IPO at $2.70 a share. The move allowed Fairfax to raise $281 million in equity and with barbarians at the gate (Gina Rinehart and Jack Cowin) the company’s board has decided to cash in a few more of its chips to bolster its fiscal situation.

Fairfax has sold 59.4 million Trade Me shares to reduce its interest from 66 per cent to 51 per cent. The shares were sold at $2.70 raising close to $160 million for Fairfax. With the Rinehart situation still unfolding, selling the Trade Me stake was the quickest and the most viable option for Fairfax to raise the cash and it does give Fairfax some breathing room.

However, it might not be too long before the board may have to revisit the idea. Trade Me is a profitable business and is an integral part of Fairfax's digital division. However, it has limited scope and can't realistically extend its footprint across the Tasman and into the broader digital future that Fairfax is envisioning. Given the enormous structural challenges the company is facing it might have no choice but to divest the entire business even at the risk of losing some of the shine off its digital credentials

A wholesale divestment probably isn't immediately on the cards but it might not be too long before Fairfax's board is forced to return to the drawing board.

Microsoft’s tablet mystery

After seeing Apple hog the limelight last week it looks like Microsoft is ready to do some unveiling of its own, with the software giant not only in the mood to get more social but also expected to lift the lid on its very own tablet. Microsoft is set to make a major announcement this evening and the word on the street would suggest that the software maker is finally getting serious about hardware. But will the move pay off?

A Microsoft tablet represents a major milestone because it wasn’t that long ago that the idea of building a computing device would have been unthinkable for the company. After all, the PC/Windows era had worked out beautifully for Microsoft which made a mint by licensing its software to hardware makers. There was a time that the tech game was either about building hardware or software, however, Apple has re-written the rules with Microsoft and Google now playing catch up.

The catalyst for Microsoft’s tablet ambition is Windows 8 has been designed for mobility. While Microsoft’s hardware partners have already started displaying their Window 8 offerings they will be taking a keen interest in what sort of a competitive threat Microsoft is cooking up. Therein lies a major complication for Microsoft, because it does run the risk of antagonising its hardware partners.

It would be fair to assume that a Microsoft Win8 tablet will be aimed at the enterprise space given Microsoft’s natural dominance in the sector. However, there is some speculation that the device could have an entirely different focus. According to TechCrunch, Microsoft will reveal a tablet/e-reader built in conjunction with Barnes & Noble. It’s a valid speculation given the recent deal between the two companies, which saw Microsoft invest $US300 million into the joint business dubbed "Newco” for a 17.6 per cent equity stake. Microsoft’s mystery announcement could well be the first public display of what the two companies have been up to since May.

We will have to wait and see what’s really on Microsoft’s mind but there is little doubt that the tech giant will have to get into the hardware game at some point despite its mixed track record. The Xbox has been a success for the company but only after a number of teething issues and years of losses. Meanwhile its answer to the iPod, Zune, was an unmitigated failure. Microsoft has a lot at stake with Windows 8 and whether it’s a top of the line tablet or a e-book, the company is about to put some new cards on the table. Let’s hope they are the right ones.

NewSat’s latest orbit

Meanwhile, NewSat Limited’s satellite plans are picking up steam with the listed company signing a three year contract with a South Asian satellite reseller. According to the company, the commitment is for the purchase of $US30.29 million of Jabiru satellite transmission capacity over Afghanistan. The name of the reseller has not been disclosed. The latest contract takes the total of Jabiru pre-launch customer contracts to over $US600 million. Meanwhile, the company is also looking to raise some capital with Morgan Stanley to lead the funding drive.

According to The Australian Financial Review, NewSat has secured a low interest loan of about $300 million from the United States government’s Export-Import Bank, conditional upon the $200 million equity raising. In coming weeks, it also expects to secure a guarantee of up to $100 million from France’s export credit agency Compagnie Française d’Assurance pour le Commerce Extérieur (Coface).

Hyro setback for Garry Cohen

Elsewhere, Australia’s oldest digital services business, Hyro, is set to be snapped up by US-based Kit Digital Incorporated for $2 million in cash and 1.84 million shares. The final decision went down to the wire with 51 per cent of shareholders voting in favour of the deal to sell Hyro’s assets.

Under the terms of the deal, Kit Digital will buy the assets, with Hyro to continue to trade as a shell for at least six months. The shares acquired by Hyro in the sale will be released from escrow after that six months period. Hyro then intends to sell the shares and while the final amount of capital will depend on the value of Kit shares there is a $14.7 million floor price for the parcel.

The vote is a blow to former iSoft co-founder and technology baron Gary Cohen who had launched a campaign to prevent the sale. Cohen was waging his campaign through his concern Marcel Equity, which owns 10 per cent of Hyro, and had presented an alternative recapitalisation proposal. Cohen had proposed to put money into Hyro via a one million convertible note and by subscribing for 1.5 million shares. It also planned to underwrite a rights issue to existing shareholders and acquire two new companies, Global Internet Technologies Australia and Social Loot Australia.

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