APN News & Media and its NZME unit in New Zealand would become more attractive takeover targets after demerging and the split wouldn't result in markedly weaker balance sheets, according to an independent evaluation by Deloitte.

APN is proposing a demerger via an issue of shares on the basis of one NZME share for each APN share held. APN would also undertake a one-for-seven share consolidation and raise about A$180 million via a fully underwritten one-for-three renounceable entitlement offer, it said yesterday. Shareholders will vote on the plans at a meeting on June 16.

Deloitte concludes the advantages of a demerger would outweigh the disadvantages. APN would be free to pursue growth in its Australian radio and outdoor assets, while NZME would focus on its integrated radio, print media and digital operations.

A demerger was independent of APN's talks about a merger of NZME with Fairfax Media's New Zealand operations, which was announced separately.


Over time, the shareholding base of APN and NZME would change to reflect the different risk profiles of the two businesses, and they would attract a different range of potential acquirers, Deloitte said. "Following the proposed demerger, potential acquirers of APN News & Media would be bidding for a more focused Australian media company, rather than a cross-jurisdictional entity," Deloitte said. "As such, under the current structure, any takeover offer for APN News & Media may incorporate a discount to allow for the subsequent divestment of the NZME business."

APN is likely to be part of "significant consolidation" in the Australian media market expected to follow proposed easing of media ownership law that would abolish the so-called "two out of three rule", prohibiting ownership of more than two of a commercial TV licence, radio licence or newspaper in the same market, and the "75 per cent rule", which prevents a TV network reaching more than 75 per cent of the population.

A standalone NZME "will be significantly more attractive and accessible to potential acquirers along with having the increased potential to participate in a merger like the potential Fairfax NZ merger".