Left-wing newspaper publisher Fairfax Media has bowed to pressure from bankers and bond-holders, raising hundreds of millions of dollars to pay down a small portion of their $2.5 billion debt mountain early. It also announced on Friday that it was sacking its CFO for getting them in such a financial mess.
The market has continued to express concern over the company’s future, selling down the company to new lows.
The desperate move came despite only days earlier saying the company had no extra need to raise cash. VEXNEWS and other observers were able to prove that wrong by pointing to their own rapidly maturing list of creditors. The market did the rest, selling the companies shares heavily.
Regulators are believed to have interviewed senior Fairfax executives over allegations they deceived the market by misrepresenting their need for more funds.
The effect of selling so many new shares to existing shareholders is a massive dilution of their biggest shareholder – John B Fairfax – who is understood to have a huge debt-servicing issue of his own and was not in a position to buy any more shares than the ones he’s currently stuck with.
The company made a rights issue to its existing shareholders and John B Fairfax was simply unable to meet the call for funds. The effect of this will be dilute his shareholding considerably and leaving the underlying value of what’s left considerably diminished. If he’d had the money available John B Fairfax would have needed to stump up $95 million to maintain the percentage of the company he had. He’s going backwards. Fast.
He had hoped that by agreeing to this huge dilution, his bankers would be pleased by a rise in the share price after the removal of some of the financial instability in Fairfax Media.
The market wasn’t buying it though, with the shares plummeting to 87.5 cents from an open 95 cents, its lowest level since the company was last in receivership in the early 1990s.
Market insiders say that John B Fairfax will struggle to stay within his own bank covenants with Fairfax Media below the 80 cent level. It’s not far off that. With further reports of softening in the advertising market hitting the company, it’s considered a minor miracle that Fairfax were able to raise any money at all.
It’s clearly just a drop in a very large ocean of debt, that seems set to imperil the entire company and drown its biggest shareholder.
The company – as currently structured – is living on borrowed time – and money.