Fairfax under the pump

Posted by Michael on February 21, 2009, 5:49pm, 220 views

According to a report in The Australian, rival Fairfax media has debt of $2.3 billion and market capitalisation of $1.5 billion.

I’m not an economist, or a solvency expert, but surely market capitalisation reflects what investors believe to be the value of the assets?

Maybe the market is wrong and the assets might fetch more than $1.5 billion if sold piecemeal.

And presumably Fairfax is running most of its sites at a profit with positive cashflow.

However, it’s disturbing that a major listed company has such a high debt level compared with its market capitalisation.

It’s little wonder that Fairfax shares have collapsed below a dollar.

Given there are significant challenges ahead to revitalise the business, the options appear to involve selling assets and/or raising equity.

Radio stations and regional publications that are non-core to strategic operations might be placed on the market.

Fairfax would have been an obvious bidder for APN if it had any cash.

While you can’t easily pick the top or bottom of any market, the price Rural Press paid towards the top of the boom for Albury and Wagga mastheads, for example, would probably not be offered today.

My idle speculation is that Western Australia is an area Fairfax might look to exit if cash needs to be raised.

These articles might be of interest:

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