Battle lines drawn in the fight for Fairfax Media: Bartholomeusz

The battle lines within Fairfax Media are now drawn. It is the two Fairfaxes, father and son, against the rest of the Fairfax board.

At face value, that’s an uneven contest. Five independent directors, including the deputy chairman Roger Corbett, against John B and Nicholas Fairfax, with John B’s long-standing right-hand-man, Brian McCarthy, sidelined by his chief executive status.

The solidarity of the boardroom support for chairman Ron Walker is the strongest card Walker can play to overcome the Fairfaxes’ pledge to oust him at the group’s annual meeting in November.

Except that’s not quite how the warring camps line up, because the Fairfaxes claim, with some justification, the support of key institutional shareholders – sufficient support, they say, to ensure Walker won’t be re-elected when his term as a director expires at the AGM.

Walker infuriated the Fairfaxes, and ignited what could evolve into a fierce proxy fight, by telling the Australian Financial Review earlier this week that he planned to retire in the second half of next year after overseeing a renewal of the board.

Curiously, while the independents said today that they unanimously supported and would continue to support Walker, who they said had led the company with “great distinction”, there was no reference to their support for his re-election.

That may have been an oversight. Corbett, under whose name the statement was issued, is in Israel for a Walmart board meeting and the Walker supporters were scrambling to organise themselves today.

However, it may also be that before locking themselves into a position the independents also want to test the strength of the institutional support for the Fairfaxes, who plan to vote their 9.7% stake – and proxies they control – against Walker’s re-election.

While the Fairfaxes say that they have sufficient votes to ensure the outcome, the independents would want to test that claim and also to see whether the institutions are welded onto the Fairfaxes’ platform. In that sense, the broad but rather vague statement of support for Walker could be seen as buying time.

A possible tactic the independents could use is the neutron bomb threat adopted by the directors of West Australian Newspapers last year when confronted with Kerry Stokes’ proxy campaign – they threatened to resign en masse if Stokes gained entry to the boardroom. The threat worked, momentarily, with Stokes being “invited” into the board five months later and the old guard moving on. In the Fairfax context, that kind of threat might well be counterproductive.

Corbett, who clearly wants to be the next chairman of Fairfax, is a very astute operator. He won’t risk his ambition unless there is a realistic prospect that Walker can be re-elected. Walker himself isn’t exactly unsophisticated. It is improbable that he would put himself at risk of humiliation by fighting a battle he was predestined to lose all the way through to the AGM.

An extra dimension to the conflict, if it gets to the AGM, is that Corbett himself is up for re-election.

The war, which has been simmering for a long time but surfaced in an explosive fashion when John B went public this week, may well turn phoney for awhile as the two camps test each other’s strengths and support.

Given that the key issue is whether Walker retires this year or next, if the institutions support the Fairfaxes in sufficient strength the odds would favour a negotiated outcome, perhaps one where Walker leaves earlier than planned, Corbett’s re-election and elevation to the chair is guaranteed and some assurances on the nature of the board renewal process are made to the shareholders.

This article first appeared on Business Spectator.