Independent's APN stake sale a tough deal

By Denny Thomas

SYDNEY (Reuters) - Independent News & Media plc's (INME.I) likely A$555 million ($370 million) sale of its APN News & Media Ltd (APN.AX) stake is littered with challenges, giving cashed-up buyers such as Seven Network Holdings Ltd (SEV.AX) the upper hand in the deal.

Independent's advisors, Goldman Sachs JBWere (GS.N) and Australia and New Zealand Banking Group Ltd (ANZ.AX), are likely to run a tight timetable as Independent needs to pay down debt by middle of next year.

Last week Irish billionaire Tony O'Reilly said Independent planned to sell its 39.1 percent stake in APN after making several attempts to increase its holding, including a failed A$3 billion bid with private equity firms last year.

Analysts expect a deal to be wrapped up by early 2009, but a source close to the process said no timeline has been drawn yet.

APN, which publishes newspapers and owns radio stations and outdoor advertising in Australia and New Zealand, could have been a break-up play for buyout funds in an easy credit cycle.

"It won't be easy for them. There has been other media assets on the market for a while ... APN has probably realistically been looking for buyers now for quite a while," a banking source, close to a likely buyer, said. He declined to be identified as the discussions are confidential.

Another source close to Independent but not authorized to speak to media said the stake was attracting significant interest from parties in Australia and overseas and that "Independent had decided to run a formal auction and sale process."

The source also said that Independent had "no imperative to sell," and had decided on an auction only after receiving the unsolicited approaches.

Independent would use the proceeds to pay down its 1.4 billion euros debt.

Structuring of the deal is crucial as Australian laws prevent an entity from buying more than a 20 percent stake in another firm without making a takeover for the whole company.

One option is to seek shareholders' approval to buy the remaining 19 percent and then make a takeover bid for the entire firm. But a shareholder vote brings in an element of uncertainty.

"That is one option, there are whole sort of an array of similar alternatives," the first source said. He declined to be identified as the sale process was confidential.

An unconditional takeover offer for the whole firm is the quickest way to seal the deal, bankers say, but the vendor is unlikely to get the best price as the buyer is taking of risk not getting control.

A complete takeover would cost the buyer about A$1.4 billion, potentially pushing it out of buyout funds' reach.

"I wouldn't rule private equity out. They have obviously significant sums of capital. Clearly the financing markets are difficult, but that being said there are deals around the world are still getting done," the source added.