TPG’s first offer for Fairfax Media was rejected, but the second bid is now being taken seriously by investors. A slightly higher bid by Hellman & Friedman is now also on the table.

TPG is an American investment fund, that has combined with other investors, most notably a Canadian teachers pension fund, offering first 95 cents per share, and now increasing the offer to $1.20 per share. Hellman & Friedman has offered 2-5 cents more per share.

There are a lot of ‘ifs’ in this scenario, that could affect Macquarie Media, which is still majority owned by Fairfax Media.

radioinfo reviews the options.

If the offer is good enough, will Fairfax shareholders accept it?

If shareholders do accept it, will it be approved by the Foreign Investment Review Board or the competition regulator ACCC?

And if both of those things take place, what will happen to Macquarie Media, owner of the merged Fairfax and Macquarie Radio stations?

The first if. Will shareholders accept it.

The Fairfax board said shareholders do not need to take any action in response to the proposal, and it will provide an update once it has fully assessed the bid, so the jury is still out as to whether the board of directors will recommend acceptance of the offer.

The latest offer from Hellman & Friedman is also under consideration, with Fairfax chairman Nick Falloon telling the Australian Securities Exchange that both bids will proceed to due dilligence.

The original offer was for the Domain website and the company’s main newspapers, but the revised offers now includes all the company’s assets, including its share in the Macquarie Media radio networks.

The second if. Approval.

The foreign investment review board may review the transaction if shareholders vote to accept it. While the ownership of Domain may not be considered an issue for FIRB, the ownership of major newspapers such as the Sydney Morning Herald, the Age and the Australian Financial Review may be considered not in the national interest. However, a foreigner, former Australian, now US citizen Rupert Murdoch does own the other major News Limited newspapers in this country, so perhaps that horse has already bolted in terms of precedents.

Communications Minister Mitch Fifield ducked the issue this week, telling reporters at the ACMA conference: “It’s a matter for the Board and shareholders of Fairfax. And as there’s a possibility that a proposition could be before FIRB, as a Government Minister it’s not appropriate for me to say anything else.”

The ACCC may also have a role to play in judging whether the move is anti-competitive, but, as the investment company does not own other media in Australia, it may not be considered relevant to that body. Nor would the ACMA be likely to need to sign-off on the deal, because none of the reach or ownership rules would be infringed. These rules are set to be lifted, but are currently still in place until the proposed legislative changes are passed in parliament.

The Macquarie Media ownership story so far.

Fairfax Media owns around 54% of Macquarie Media Limited (MML). Macquarie Radio network (previous owner of 2GB and 2CH) merged with Fairfax to form Australia’s biggest talk radio network over a year ago, and renamed it Macquarie Media Limited. 2CH was recently sold, as required under the current media ownership laws.

Despite being the junior partner in ownership terms, Macquarie Media is running the company on a daily basis. There are five members on the Macquarie Media board, Chairman Russell Tate, plus two members from Fairfax and two from the former Macquarie Radio Network. Our sources tell us that Fairfax was not focused on running a radio network in recent years so was content to leave the operations of the company to Macquarie’s Russell Tate, assisted by former Fairfax senior executive Adam Lang.

The third if. What would happen to Macquarie’s radio network?

In the first scenario (now rejected), the question for Macquarie Media would have been what to do if Fairfax was taken over, but MML was cut lose. The 54% shareholding would not have been included in the deal and the shares would have been left in Limbo, with TPG originally saying it did not want them.

With the improved offers of $1.20 to $1.25 per share, valuing Fairfax at nearly $3 billion, it is possible that it will be business as usual, with a new owner retaining its majority shareholding in Macquarie Media, taking its share of the company’s annual profits and putting them back into the Fairfax bottom line.

Macquarie Media made $67.9 million in the 6 months to December 2016 and a profit of $13 million.

Or the new owner might sell off it’s share in MML to get back some cash and to focus more clearly on the company’s main digital and print products.

If the new owners did sell the MML shares.

After Fairfax, John Singleton is MML’s second largest shareholder, with 32% of shares. Would he or colleague Mark Carnegie have enough money to buy out the Fairfax 54% share? Probably not, they are already heavily leveraged with their current shareholding.

But there is another wildcard in the mix. Australia’s media laws are likely to change.

If they do change then there may be more interested buyers, such as some of Australia’s commercial tv stations. Southern Cross Austereo already owns radio and tv stations, perhaps another company might seek to replicate that combined media model.

With so many moving parts in play at this time, the Fairfax sale is now of greater interest to media industry watchers, especially those in radio. We will be following the Fairfax sale and its implications for radio as the bids proceed.

As well as the sale process, Fairfax is also caught up in the Senate inquiry looking at public interest journalism, with Fairfax CEO Greg Hywood today fronting the inquiry to explain recent job cuts and restructuring in the company. The Daystyari/Xenophon inquiry is assessing the proposed new media law changes in light of the huge structural changes taking place in the modern media environment.