Fairfax Media has announced a takeover of Rural Press which will create a combined company with assets worth more than $9 billion.

Rural Press shares were up more than 15 per cent to $13.59 at 2.45pm, while Fairfax shares dropped 19 cents to $5.02 as the markets deflated some of the takeover premium in the stock.

The takeover will create Australasia’s largest integrated metropolitan, regional and rural print and digital media business, the companies said in a joint statement to the Stock Exchange this morning.

The proposed transaction has been unanimously recommended by the Rural Press board in the absence of a superior proposal.

“This merger has been contemplated by both companies over a number of years. We look forward to the successful completion of the transaction,” Fairfax chairman Ron Walker said.

“With an enterprise value of over $9 billion, we are poised for stronger growth and further strategic expansion of our brand in Australia and overseas in the years ahead.”

At current share prices, a combined Fairfax/Rural Press will be worth $6.7 billion - the enterprise value includes debt. 

“It makes a purchase of Fairfax much more complicated,'’ Craig Shepherd, an analyst at Commonwealth Securities told Bloomberg.

“We are looking at a scenario where Fairfax just got more expensive (for predators) and a break-up of Fairfax got a little bit more problematic because one of the obvious buyers of some of the assets was Rural Press,'’ he said.

“For Rural Press it represents a fantastic way to get into a strategic asset like metropolitan papers they have always wanted.'’

The plan will add The Canberra Times to Fairfax’s stable of publications which includes The Sydney Morning Herald, The Age and The Australian Financial Review.

Under the proposal, each Rural Press ordinary and preferred shareholder will be entitled to receive, for each share held, two Fairfax shares and $3.30 in cash, or 2.3 Fairfax shares and $1.80 in cash.

In addition, the Rural Press board said it intends to declare a fully franked special dividend of 57.143 cents per ordinary share, and 62.858 cents per preferred share.

The offer, which will be voted on by Rural Press shareholders, represents a premium of around 15 per cent on the company’s current share price of $11.75. The deal does not have to be approved by Fairfax shareholders.

Mr Walker will remain chairman of the combined group and Fairfax chief executive David Kirk will have the top job. Rural Press chief executive Brian McCarthy will become deputy CEO.

The takeover will help defend Fairfax against a possible predators like private equity groups and other media organisations.

Kerry Stokes’s Seven Network confirmed yesterday it had built up a small stake in the company.

It is understood Seven owns about 3 per cent of Fairfax.

It started buying shares in October, about the same time it picked up a 14.9 per cent stake in West Australian Newspapers and before Rupert Murdoch’s News Corp paid $5.20 a share for its 7.5 per cent stake in Fairfax.

It is the latest in a series of moves by the big media players since the Federal Government announced a relaxation of the cross media and foreign ownership rules in the first half of October.

Seven, News and Publishing and Broadcasting Ltd have been quick to position themselves since the Government announced the rule changes.

However, the industry is still in the dark about when the new rules will come into effect.

The Communications Minister, Helen Coonan, said a date would not be set until next year.

This is the first takeover bid since the laws were announced but the deal can go ahead irrespective of changes to the media laws.

Just two weeks ago, Mr Stokes said Seven Media Group, its new joint venture with KKR, had not yet considered an acquisition of Fairfax.

AAP reports: Rural Press chairman John B Fairfax said the merger was a natural progression for the continued growth of Rural Press’ regional publishing business.

“The merger with Rural Press will provide opportunities for Fairfax Media to leverage its online media businesses and expertise across regional communities throughout Australia,'’ he said.

The merged group will have a geographic footprint covering the metropolitan markets of Sydney, Melbourne and Canberra, and printing and publishing with over 240 rural, regional and community publications.

It also will have a substantial presence in New Zealand, a significant agricultural publishing presence in the USA with over 20 titles, nine radio licences in Queensland and South Australia, and over five million visitors to the Fairfax Digital sites and farmonline.com.au, canberratimes.com.au and yourguide.com.au.

Source SMH