Plans by Independent News & Media to sell its Wilson & Horton subsidiary in New Zealand to APN, the Australian group in which it has a 41 per cent stake, are likely to be completed within a week or two.
If a deal is done, and the final price tag will have to get the approval of independent advisers, it would sharply reduce Independent's heavy debt load while giving APN the scale to consider a bid for Fairfax, the biggest publisher of national daily newspapers in Australia.
Yesterday's confirmation of the possible sale was, in effect, forced on Independent after the proposed restructuring of the Independent's interests in the Antipodes was leaked to the Australian Financial Review.
Independent director Mr Gavin O'Reilly and finance director Mr James Parkinson have been in Sydney, apparently putting the finishing touches to what will be a highly complex transaction.
Based on its forecast earnings before interest and tax this year of 150 million New Zealand dollars (€70 million) and applying APN's own earnings multiple, analysts value Wilson & Horton, whose flagship asset is the New Zealand Herald daily, at €580 million.
Independent had net debt of €1.5 billion at the end of June with interest covered just 3.1 times.
Not all of the proceeds from a sale of Wilson & Horton could be used to reduce debt if Independent wants to maintain its 41 per cent stake in APN. While APN has a healthy balance sheet, with interest covered 10 times, buying Wilson & Horton would mean buying a company almost its own size. Analysts believe that, while its healthy balance sheet would allow APN gear up substantially for an acquisition, some money would probably be raised through a rights issue.
In this situation, Independent is thought certain to take up its rights to maintain its 41 per cent share and effective management control of APN.
Market sources said investment bankers J.P. Morgan and stockbrokers J.B. Were had been lined up to handle the fundraising for the acquisition. If it does go ahead, it will be deemed a related party transaction and an independent evaluation of the terms will be required.
Analysts believe it will be some time before any reversal of Wilson & Horton into APN is completed. They believe the ultimate aim is to build APN's scale to allow it bid for Fairfax, once Australian media foreign ownership and cross-ownership rules are relaxed. How quickly these rules will be relaxed depend on the outcome of the Australian general election next month.
The outgoing Liberal administration has indicated it favours easing media ownership rules, while the opposition Labour party opposes such a relaxation. If the APN/Wilson & Horton merger proceeds and if the ownership rules are amended, analysts believe the enlarged APN will table a bid for Fairfax some time next year. Fairfax is currently valued at three billion Australian dollars (€1.7 billion).
