Fairfax Media pays $72 million to buy back its Melbourne real estate ad revenues

Fairfax Media has finally moved to take full control of the Melbourne regional newspaper publisher, Metro Media Publishing (MMP), announcing it will buy the remaining 50% interest held by the business's foundation shareholders for $72 million.

It will pay $18.5 million in cash and issue about 68.5 million new shares at $0.78 each to acquire the interest.

Metro Media is majority owner of 15 weekly real estate and lifestyle-focused magazines and newspapers in Victoria and online property site, reviewproperty.com.au.

MMP launched the Weekly Review in April 2010, with estimates the glossy magazine took about $20 million in real estate advertising from Fairfax given backing from estate agents in Melbourne’s wealthy eastern suburbs.

The co-shareholders in the businesses are mostly real estate agents who have financial interests via Metro Media's equity structure.

Antony Catalano, founder of Metro Media, will remain chief executive of Fairfax's Domain Group property advertising unit and will have responsibility for the Metro Media operations, the company said. Antony Catalano and five management staff have all agreed to swap their equity in MMP for equity in Fairfax, MMP spokesperson John Hine advised.

Domain Group has been tipped to be floated, in whole or part, by market analysts since it became a standalone unit at Fairfax Media.

The market had anticipated the MMP buyback with estimates it would be at around $75 million.

At a June 2013 investor briefing in June, Fairfax revealed Domain had recorded revenue of $141 million in 2012-13 and earnings before interest, tax, depreciation and amortisation of $45 million. MMP contributed $81 million to the company’s real estate advertising and services business.

“Since we formed the MMP joint venture in December 2011 EBITDA has increased from $4 million in FY12 to $14 million in FY14 and is on target for strong growth in FY15," Fairfax advised today.

Fairfax Media have now spent around $175 million buying back its property advertising revenues from renegade Melbourne newspaper groups in the past 12 years.

It spent $35 million in 2011 for its initial 50% stake in MMP.

It also paid around $65 million in 2003/2004 to secure the rival publicly listed Text Media operations - whose publications included the glossy suburban newspaper The Melbourne Weekly - in a bid to shore up its classified advertising base.

"We believe this transaction will effectively mitigate the erosion of Fairfax's existing share of the Melbourne real estate listings," ABN Amro analyst Peter Shorthouse said in 2003.

Fairfax, publisher of The Australian Financial Review, The Sydney Morning Herald and The Age, said today's MMP decision highlighted its real estate advertising arm, Domain continuing its “aggressive national expansion”.

It noted MMP reaches 1 million households in Melbourne and Geelong every week via The Weekly Review magazines and Star Weekly newspapers and operates Melbourne’s fastest-growing property portal, reviewproperty.com.au.

“The consolidation of the balance of the equity in MMPH simplifies the operations of our fast-growing property services businesses, which have more than $300 million in real estate revenue,” said Fairfax chief executive Greg Hywood in a statement to the ASX this morning.

The value of the Fairfax shares to be issued is set at 78¢ per share, which is the 45-day, volume-weighted average price of Fairfax shares up to December 31, 2014. Based on that share price, total consideration is $72 million, including $18.5 million in cash.

The Fairfax shares will be issued after the release of the Fairfax half-year 2015 results in mid February.

MMP’s founding real estate agent shareholders will take 65% of their consideration in Fairfax shares.

Fairfax will issue approximately 68.5 million new Fairfax shares as part of this transaction. Post this share issue the MMPH foundation shareholders will together hold approximately 2.8% of Fairfax’s total shares on issue. 

The value of the Fairfax shares to be issued is set at 78¢ per share, which is the 45-day, volume-weighted average price of Fairfax shares up to 31 December, 2014.

The Fairfax shares will be issued after the release of the Fairfax half-year 2015 results in mid February.

“In a little over four years, hundreds of agents across Victoria in partnership with MMP have created for themselves a very substantial financial interest through their shareholdings in the MMP Group," MMP chairman, Charbel Nader said.

The AFR's Streettalk column suggested Kay & Burton, Jellis Craig, ­Marshall White and Bennison Mackinnon, who were founding investors in Metro Media Publishing Holdings, each put $200,000 into the business in 2010 and have realised about $22 million in equity and cash, not including dividends.

There were numerous additions and changes in shareholdings over the years, but estate agents and estate agencies with shareholdings, of various types and various beneficial and non-benefcial holdings at times since 2010, have included Williams & Co, Leigh and Valerie Hallamore, Abercromby's, Russell Turner, Gavin and Carol Fallon, Fletchers and Parker Holdings, Jeremy Fox, Thomas Buxton and Garry Quinton, Noel Jones (Glen Iris), Noel Jones (Kew), Mike Nolan's Rathnol Pty Ltd, Walker Real Estate, McLaren Real Estate Kew, Geoffrey Hall's Popes Eyes Investments, Christopher and Susan Ewart, David Gillham's Shark Cat Enterprises Pty Ltd, and Rodney Morley Persichetti.

Fendus Nominees, Duroc Pty Ltd, Zerley Pty Ltd, Parkeredis Balwyn Pty Ltd and 8 Figures Pty Ltd Hampton have ranked amid the shareholders too.

Kay & Burton industry veteran Gerald Delany was a foundation director, with foundation company secretary being Norman Draper, the senior partner of the accounting firm Lawler Draper Dillon.