Will Rinehart regret her Fairfax play?

Just two weeks after watching her fortune climb towards $20 billion, Gina Rinehart has surprised financial markets and the media sector by launching a $192 million “raid” on Fairfax Media.

Rinehart is looking to buy a 10% stake to add to her existing 4% stake; so far it appears she’s secured about 5% of that.

But she’s still a long way from answering the big question: What does she really want to get out of this investment?

It’s not money. Fairfax Media shares have almost halved in the last 12 months and like most media groups it is facing a painful restructuring period as revenue from its traditional print titles dries up and shifts online.

The idea that Rinehart is hoping she can quickly boost the share price and make a good return on her investment seems off the mark – particularly for someone used to making astronomical returns from her mining interests.

Rinehart has billions of dollars of coal and iron ore projects in play and recently emerged as an investor in a new diamond exploration business. If she’s looking for a little investment on the side to play around with, surely she’s got better things to put money into than Fairfax.

If she doesn’t want money, it stands to reason that she wants the prestige and influence that owning media assets bring – or that she thinks these investments bring.

Rinehart’s media investments started in late 2010, when she grabbed a stake of 10%, investing alongside James Packer and Lachlan Murdoch. She joined the board of Ten in December 2010. Rinehart original investment in Fairfax was made in the same year.

So far, Rinehart has kept quiet on her reasons for investing in the media. At the time of her buy into Ten, she said she was “interested in making an investment towards the media business given its importance to the nation’s future”.

The “nation’s future” is clearly something Rinehart has strong views on. She talks a lot about the idea in posts on the website of her company Hancock Prospecting and in speeches.

She’s against the mining tax and the carbon tax and she’s in favour of the creation of a special economic zone in the north of Australia that would provide for lower taxes and more flexible labour laws.

These views have seen her labelled by most as a right winger, but it could be argued that her favourite topics are very narrowly focused on her own interests – she cares about mining and little else.

But she has things she feels are important to say and it would appear she wants a wider platform to say them.

Her late father Lang Hancock owned stakes in newspapers in Western Australia and advocated using the media to exert influence. It seems reasonable to suggest that by buying into Ten and Fairfax, Rinehart is hoping to do the same.

Of course, exactly how much influence she would have over these media companies is a vexed question.

If Rinehart does get to 15% of Fairfax and can get a seat on the board, she will clearly have some level of say over the how the company is run. Having a say on appointments of executives and editors could allow her to push her views, as could having a say on which titles and products are launched and closed.

But she would be one voice on a board that prides itself on editorial independence. If Rinehart thinks she’ll get her way instantly, she could very well be disappointed.

Her better bet would be to buy the entire company outright. It seems far-fetched, but if she really wants control of Australia’s second-biggest newspaper group, she certainly has the financial firepower to grab it.

How this all turns out depends largely on how much Rinehart wants to get her views across. Is she prepared to spend a lot of money and lot of time getting a bigger slice of Fairfax?

I think there’s two ways this could go.

If Rinehart isn’t prepared to spend time and money building her position within Fairfax, she could quickly come to regret buying this stake.

She’s not going to make money from it, she’s going to be much more in the public eye (something she detests, despite her desire to have her views heard) and she could well be distracted from what is a giant, $20 billion mining empire. Within a few years she may well decide that the whole adventure has been a big waste of time and get out.

On the other hand, if Rinehart is committed to building a position of influence, she could very well be prepared to spend years and potentially a lot of money grabbing control of Fairfax. The way the media industry is travelling, a company like Fairfax could well need to raise capital and so Rinehart would be well placed to build her stake. The option of a complete takeover would remain possible, even if it is unlikely.

At this stage, I’d be backing the first option – Rinehart’s mining interests are so big that I would question whether she really wants to get into what would be an ugly brawl for control of Fairfax.

But Australia has never seen a person with the wealth of Rinehart. She could, on a whim, buy Fairfax, Ten and several other media companies and still have plenty of cash to spare.

Rinehart could, if she wants, raise all sorts of questions about how Australia’s media and political system works.

In 1979, Lang Hancock wrote a book called Wake Up Australia, where he raised the question of breaking the power of governments through the media.

“It could be broken by obtaining control of the media and then educating the public.”

Hancock never had the financial firepower to test his theory. Does his daughter have any intention of doing so?

You’d have to think not, given all she has on her plate with Hancock Prospecting. But it is a fascinating and even worrying idea.