QMS Media will pocket A$35 million in a tie-up with free-to-air New Zealand broadcaster MediaWorks, despite the Australian outdoor advertising firm being the junior partner.

QMS and US private equity fund Oaktree Capital are merging their New Zealand operations, QMS New Zealand and MediaWorks.

QMS will receive a A$35 million (NZ$36 million) payment, subject to final adjustments in their financing agreement, and 40 per cent of the merged entity while Oaktree will own 60 percent.

That payment will largely extinguish a related party loan from QMS in Australia to its New Zealand holding company. At June 30, the New Zealand unit owed its parent NZ$38.1 million, paying annual interest of 3.75 per cent. The loan was repayable on demand.

Advertisement

Adding QMS NZ's outdoor advertising assets to Mediaworks' existing suite of online, radio and TV advertising channels is expected to boost the media company's 2019 earnings by A$12.8 million.

"Since announcing the proposal to merge, we have seen strong support from our clients who recognise the power of the integration we will now be able to provide across four platforms," MediaWorks chief executive Michael Anderson said.

The deal is also expected to boost earnings for QMS from the 2020 financial year, once duplicated costs are stripped out and it coordinates its product offering.

QMS NZ generated ad revenue of $40.9 million in the June 2018 year, down from $44 million a year earlier, accounts filed to the Companies Office show. Its gross margins were 42.2 per cent, compared to 43 per cent a year earlier. The New Zealand subsidiary generated a net profit of $4.3 million for QMS.

Meanwhile, MediaWorks' latest accounts showed it inching closer to profitability with a loss of $5.7 million in calendar 2017 compared to a loss of $14.8 million a year earlier. That was on a 1 per cent increase in revenue to $300.2 million, of which radio accounted for $159 million, TV contributed $130 million, and digital brought in $11.6 million.

The transaction is subject to various conditions, including Overseas Investment Office approval, with completion expected in the second quarter of next year.

QMS shares were unchanged at 95 Australian cents on the ASX, having declined 5 per cent so far this year.

- BusinessDesk