Fairfax Media is in a desperate attempt to deal with the cash crisis that confronts the company.
Its shares have been suspended while it negotiates with institutions to give it much-needed cash to keep the company within its soon to be breached bank covenants.
Current shareholders will take a hiding, if market expectations are met, because the new shares, if they can be placed at all, will be available at a deep discount to the current share price. One broker who spoke with VEXNEWS while in the queue at the Salvo’s told us that it would be as much as 10-15% discount “in this market, given the lack of confidence in media stocks and Fairfax in particular.”
That will mean a semi-permanent further decline in the Fairfax share price from the 90 cent range to the 80 cent range. That could be devastatingly bad news for major shareholder John B Fairfax who is said to be hocked to the eye-balls on his shares and is rumoured to be in breach of lending agreement covenants of his own at the 80cent a share level.
He’ll be hoping this move keeps the company alive for long enough so he can negotiate with his principal lenders.
Its horrifying to think the savings and retirement nest-eggs of Australians could be invested into the ongoing corporate nightmare of Fairfax Media.
UPDATE: The Australian reports Fairfax could be trying to raise as much as $500 million to pay down some $2.5 billion in debt. A huge amount that will massively dilute existing shareholders like John B. Fairfax who himself is believed to be in a debt crisis of his own.