Fairfax Media's board has given no indication of whether if will make a recommendation on a $2.2 billion proposal to split up the company, but has warned that it may not be good value for shareholders.
A consortium led by US-based private equity giant TPG Capital and Canada's Ontario Teachers' Pension Plan Board wants to buy Fairfax Media's Domain real estate classified business, the unit controlling flagship newspapers The Sydney Morning Herald and The Age, and its events and digital ventures businesses.
Under the proposal, the remaining businesses - including regional newspapers, New Zealand Publishing, Macquarie Media and the Stan streaming service - would be grouped under a new ASX-listed company called New Media Co, which would also take on 100 per cent of Fairfax's current net debt.
Investors seemed to be interested in the TPG proposal, driving Fairfax shares up by 3.0 cents, or 2.83 per cent, to $1.08 at 1520 AEST on Monday.
That's their highest level since March 29.
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However, the Fairfax board said a demerger would require the approval of shareholders and regulators including the Foreign Investment Review Board - and may be too complex to carry out anyway.
"This proposed split of businesses may not optimise shareholder value," the Fairfax board said in a statement to the ASX.
"Fairfax shareholders do not need to take any action in response to the indicative proposal and the Fairfax board will update shareholders when it has been fully assessed.
"There is no certainty the indicative proposal will result in an offer for Fairfax, what the terms of any offer would be, or whether there will be a recommendation by the Fairfax board."
The media company is going through a trying period with many journalists on a week-long strike following last week's announcement that 125 jobs would be cut at The Age, The Brisbane Times, The Sydney Morning Herald and WA Today to save the company $30 million.
Fairfax Media last week reported that total group revenue was down six per cent in the 17 weeks to April 23, from the prior corresponding period.
The proposal also complicates the situation involving Domain business, the most profitable arm of the Fairfax, which it preparing to list on the ASX at the end of 2017.
Fusion Strategy media analyst Steve Allen said TPG's valuation on Domain under the $2.2 billion bid could create difficulty for Fairfax's board.
The "fairly full" valuation of Domain - estimated by some analysts to be worth about $2 billion on its own - made any float "a much tougher ask", he said.
