The Hellman and Friedman bid valued Fairfax at between $1.225 and $1.25 per share which is slightly higher than the initial $1.20 all-cash offer made by a TPG consortium on Monday which valued the company at $2.7 billion.
In a statement to the ASX on Thursday morning, the Fairfax board announced they will invite Hellman and Friedman and the TPG consortium to conduct due diligence to establish whether an acceptable binding agreement can be reached.
Fairfax chairman Nick Falloon told shareholders to take no action and confirmed the company would continue to move ahead with its plan to separate its lucrative online real estate publishing arm, Domain.
"The Fairfax board appreciates the support shareholders have demonstrated for Fairfax's current strategy and the potential separation of the Domain Group," Falloon says.
"We have carefully considered the indicative proposals and believe it is in the best interests of shareholders to grant both parties due diligence to explore whether a potential whole of company proposal is available."
The company continued its strategy of playing down its interest in the bidding by saying "there is no certainty that either of the indicative proposals will result in an offer for Fairfax or whether there will be a recommendation by the Fairfax board".
Hellman and Friedman is an established media investor with offices in San Francisco, New York and London and it owns Getty Images, Eller Media, National Radio Partners, Internet Brands, Young and Rubicam and Formula One.
The company has raised and managed US$35 billion of capital across eight funds and is invested in more than 80 countries across North America, Europe, Australia and Asia.
At around 11am AEST, FXJ shares rose more than six per cent to $1.23.
The bidding war has been muddied somewhat by the prospect that the TPG Consortium bid, which includes the telco and the Ontario Teachers' Pension Plan Board, could be subject to onerous national interest tests.
At a Senate inquiry into the future of journalism, Labor's Sam Dastyari who is chairing, raised the issue of the interest tests which includes guarantees to honour sacked journalists' entitlements and a promise to protect independent journalism.
The inquiry was also told the Fairfax Media had spent half a billion dollars on redundancies between 2007 and last year.
Media, Entertainment and Arts Alliance Union chief executive Paul Murphy said the industry was "at a crossroads" with more than 2,500 journalism jobs cut in the past six years.
Fairfax chief executive Greg Hywood told the inquiry "difficult decisions" created a "pretty successful story in a pretty arduous environment for a publishing company".
"Unless you make the decisions we did, the business would have not been here three years ago," Mr Hywood says.
"We have taken $500 million plus costs out of the business in the last five years. That's an enormous amount of money but only 10 to 15 per cent has been taken from the front line of journalism."
Never miss a story: Sign up to Business News Australia's free news updates.
Follow us on Twitter, Facebook,LinkedIn and Instagram
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support