KEY POINTS:
TV3'S TOP presenter John Campbell has made much sport of the trials and tribulations of his rivals at state-owned broadcaster TVNZ during the past years - to the enjoyment of his viewers and bosses alike.
But his forthcoming interview of TV3's new owner - "Thank you so, so
much for explaining how you will benefit New Zealand media, Mr Private Equity Player X, Y or Z" - could be a priceless exercise. "Are you concerned this buyout bubble which is now gobbling up Australian and New Zealand media companies is built on debt?
"Rupert Murdoch thinks you're all paying too much for old media companies - why do you think you know better than him?
"What's left to strip out after Izzy Asper and Leonard Asper took their cut? By the way, welcome to New Zealand and thank you so, so much for appearing on the show."
Joking aside, the international private equity number crunchers have their sights on NZ's media assets.
Either in cahoots with Australian media players like Kerry Stokes' Channel 7, or on their own, the funds are lining up choice media assets which rarely change hands. The first target is Canwest Mediaworks, Campbell's boss and owner of TV3, TV4 and Radioworks, which owns national brands: The Edge, The Rock, More FM, Radio Live, Radio Pacific/Trackside, Solid Gold and The Breeze plus several local radio stations.
Industry sources suggest that hovering private equity funds - rather than traditional media players - will play a big role in any subsequent bid for Canwest shares, which closed at $2.18 on Friday, down 6c from a mid-week high of $2.24.
Canwest's 70 per cent owner, Canwest Global Communications, is believed to be a willing seller.
Particularly in the wake of the parent company's CN$2.3bn ($2.85bn) purchase of Alliance Atlantis Communications in conjunction with Goldman Sachs, announced this week. Some Canadian analysts have criticised this as "betting the farm". Canwest's chairman Derek Burney says, "It's not without risk."
With the Canwest Mediawork's total market capitalisation hovering at $484m, the Canadians' 70 per cent slice is worth a tidy $345m at Friday's close and a useful cash pot for its parent company when a 10-20 per cent takeover premium is added.
Canwest Global's chief executive Leonard Asper says his company still retains "complete flexibility" in relation to its NZ assets.
The company is not under pressure from the Alliance acquisition, as Goldman Sachs has stumped up the bulk of the CN$2.3bn purchase price through a debt-equity mix structured to have no impact on any of Canwest's other operations. Canwest's Winnipeg-based communications executive Debbie Hutton was not prepared to divulge further information or expand on Asper's comments.
The Canadian company set the ball rolling two months ago when it appointed Citibank Global Markets' Sydney office to review its Australasian assets, which also include its 56 per cent stake in Australia's highly successful Network TEN. At that time, the Canadians were saying that the options include: the status quo, acquisition, divestiture, partial sale, merger and combining the New Zealand and Australian businesses. A final decision is still two months away.
But the fact that an information memorandum on Canwest Mediaworks is being prepared will be read by the industry as shorthand that it is about to be offered for sale.
NZ shareholders - whose Canwest Mediaworks' shares were worth just $1.23 last August - could expect a resultant leveraged buyout to be pitched at $2.39 to $2.61 a share - 10-20 per cent above last week's closing price.
This might seem a lot for a buyer to swallow, given the share price escalation over the past six months.
But industry sources report private equity funds are not deterred by the prospect of paying a very full price for Canwest Mediaworks.
The company's balance sheet is not excessively leveraged in the eye of the risk-embracing funds who, said one industry insider, view it as "lazy". Canwest Mediaworks posted $65.7m EBITDA (earnings before interest, income tax, depreciation and amortisation) for FY 2006. EBITDA rose 3 per cent for the first quarter of 2007 to $24.3m.
It has just $180m debt on its balance sheet, which provides plenty of opportunity for leverage after an acquisition is completed
At first blush, it would seem that Canwest has already extracted significant operational efficiencies from its NZ assets. But the company is still expanding its market share in its critical demographic targets.
For instance, 3 News now has a record margin lead over One News in the critical 18-49 market - an average 40 per cent, compared to One News' 28 per cent. RadioWorks boasts the highest audience share for that demographic for "any radio company".
Canwest will also move into digitisation, which will increase its product range.
Much of the irrational exuberance that critics claim surrounds the private equity buying spree might be well-placed. But chief executives of news media companies - who tend to be left in place if a private equity fund becomes the predominant owner - tend to be more sanguine about highly leveraged takeovers.
Partially, this is because senior management is well-incentivised to deliver the expected double-digit returns. Also the financial gearing which goes with a leveraged buyout involves a high degree of tax minimisation, which helps chief executives achieve the numbers in the first place.
In addition, the analytic expertise that the funds can draw on is very useful in driving industry convergence and synergies.
Industry speculation is also live that US-based Clear Channel - which co-owns New Zealand's biggest radio player The Radio Network in an equal joint venture with APN News and Media - might also be looking to rationalise its investments in this part of the world.
In November, Clear Channel entered a merger agreement with a private equity consortium led by Bain Capital Partners, LLC and Thomas H. Lee Partners, which valued the world's biggest radio conglomerate at US$26.7 billion ($38.6 billion).
APN is Australasia's largest radio broadcaster, with investments in 12 metro stations in Australia and 120 stations in New Zealand, including the ratings leaders. It also owns the Herald on Sunday, New Zealand's biggest newspaper the NZ Herald and a string of regional newspapers.
APN chief executive Brendan Hopkins was unavailable for comment on industry rumours, which also include speculation that APN's own radio stake might be up for grabs in a post-bid rationalisation if APN's parent company, Independent News and Media Plc, gets a new consortium of private equity funds together to launch an expected bid for the Australasian company.
One thing is certain: The Australasian radio market is once again in play.
