NZME's share price drops after Commerce Commission decision

NZME chief executive Michael Boggs was disappointed the merger applications was declined. Photo / Greg Bowker

NZME's share price had fallen by 14 cents (15.7 per cent) by late morning after the Commerce Commission (NZCC) declined its application to merge with Wellington-based competitor, Fairfax New Zealand.

By 11.15am the stock was at 75c against yesterday's close of 89c.

The proposed deal was rejected in a final ruling by the regulator this morning after being knocked back in a draft decision last year.

NZME chief executive Michael Boggs said the merger had been an exciting prospect for both businesses and their audiences.

"We will be carefully reviewing the NZCC's full written decision and over the next few weeks we will be considering our options," Boggs said in a statement.

Fairfax Media chief executive Greg Hywood said: "We are disappointed by this decision and will now take the time to carefully review the NZCC's reasons for the decision."

NZME owns the NZ Herald, Herald on Sunday, nzherald.co.nz, a range of regional newspapers and Newstalk ZB and entertainment radio stations. Fairfax owns stuff.co.nz, the Sunday Star-Times and other metropolitan and regional newspapers.

Mark Lister, head of private wealth research at Craig's Investment Partners, said the decision would not have come as a great surprise, given the Commission's earlier comments on the proposed tie-up, and following on from its move to block the proposed SkyTV-Vodafone merger.

"It's a potential short term negative for NZME's and Fairfax's share price, although not in any significant way," Lister said.

"I guess the landscape still looks pretty challenging and there is still a lot of change going on - that's what makes it difficiult - but I think the NZME business is certainly the stronger one in New Zealand than the Fairfax business," he said.

"Arguably, Fairfax had more to gain from this and therefore has more to lose from it being knocked back," Lister said.

Steve Johnson, chief investment officer of Forager Funds which owns a 9.07 per cent stake in NZME said the decision was disappointing but it had only given it the a 30 per cent chance of going ahead.

When it bought into the company it saw the potential merger as the "cream on the cake" but it didn't buy the shares on the assumption that it would go through.

Johnson said the decision had probably reduced the value of NZME by 10 per cent but the company was still attractive, as long as it kept delivering good results.

He believed NZME may now be ripe for a private equity buyer and there had been speculation in the market about potential buyers for the radio assets.

He said it was a pretty small business to be listed on both the NZX and the ASX and eventually the company was likely to pass into greater New Zealand ownership as only New Zealand investors could take advantage of imputation credits.

In the meantime he said the company was paying a strong dividend yield although that was expected to shrink over time.

Johnson, whose company does not own any shares in Fairfax, said the decision would not have as big an impact on the Australian publishing company as the New Zealand business was just part of its assets.

But Fairfax had signaled they were keen to get rid of the New Zealand assets.