Fran O'Sullivan: Merger's ripples bound to spread

NZME-Fairfax link-up means the media industry is now in play.

NZME has "first mover" advantage when it comes to the shakeup of the New Zealand media industry.

The word in investment banking circles yesterday was that NZME's move to disengage from its Australian parent and pursue a listing on the NZX puts the sector "in play". It has effectively put the media industry firmly on a consolidation path, forcing the boards of competing companies to react.

As one investment banker with strong historical exposure to several NZ media companies put it, "you can be pure or you can be pragmatic".

By opting to pursue a subsequent tie-up with Fairfax NZ, NZME (and its Australian parent APN News & Media) was taking a bold move in a market where earnings have repeatedly been chased down as digital players such as Google and Facebook affect audiences and siphon off advertising.

Other players like MediaWorks - rudderless in the wake of Mark Weldon's departure as chief executive - had earlier planned for an initial public offering.

But that will not occur until the company is stabilised under Weldon's replacement (the chief financial officer holds the management reins for now); talent is once again refocused on the job instead of internal politics; the board re-energises itself and shareholder Oaktree Capital decides the next steps.

Sky TV has its own issues to address with the loss of subscribers as new entrants like Netflix build their local audiences.

NZME chief executive Michael Boggs will lead an investor roadshow early next month to sell the upcoming listing.

There will be an APN shareholder vote on June 16 to approve the demerger. After the strong institutional support yesterday for APN's own capital raising, the demerger and listing are a foregone conclusion.

Substantial shareholders like Allan Gray have supported the move. News Limited is holding its cards close to its chest. But APN chief executive Ciaran Davis confirmed to the Herald that the key support was in place.

NZME will be listed on 27 June on the NZX and the ASX. Trading in NZME shares will commence on July 1.

[The planned merger] has effectively put the media industry firmly on a consolidation path.

Wilson & Horton - which has held the substantial NZ publishing assets through the period of Irish and Australian ownership - will be renamed NZME Ltd. Other assets like The Radio Network and GrabOne will be folded into NZME Ltd.

Former banker Sir John Anderson will step down from the APN board to take up the chairmanship of NZME after the demerger vote goes through. Peter Cullinane will also join the NZME board but stay on the APN board during the transition period. There will be two other directors: Carol Campbell and another yet to be appointed.

It is clear the APN board looked at various options before deciding to proceed with the demerger. These included retaining the status quo, a divestment or IPO of NZME.

The NZME "merger" with competitor Fairfax NZ has to be approved by the Commerce Commission. A preliminary meeting will be held with the commission next week.

Fairfax and APN/NZME have also commenced preliminary discussions on a potential transaction structure.

There is obvious strategic intent behind the moves but both companies will continue to run their businesses hard until the commission gives the all-clear. The transaction remains subject to agreement by the respective boards of the businesses. The discussions are subject to exclusivity provisions, with standard fiduciary and other carve-outs. An explanatory memorandum notes that for the future NZME will be able to adopt an independent capital structure and financial policies that will be tailored to its operating requirements and strategic objectives. "In particular, NZME management will have greater freedom to pursue growth opportunities without competing for capital resources with the wider APN business.

"As a separately listed company ... NZME will make its own market disclosures, which should enhance investor awareness, focus and ability to evaluate NZME's underlying outlook, performance, strategies and other business characteristics as a standalone business. Over time, this transparency is expected to facilitate better market recognition of the value of NZME."

Total one-off costs to implement the demerger are estimated to be approximately $8.3 million (on a pre-tax basis). If the demerger is not approved by shareholders, then total one-off costs of $5.1 million ( pre-tax ) are expected to be incurred by APN.

Debate on this article is now closed.

- NZ Herald

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

Read more by Fran O'Sullivan

Sort by
  • Oldest

© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production apcf03 at 27 Oct 2016 03:28:08 Processing Time: 713ms