The increased risk of Stuff ceasing operations was a key factor in the High Court's decision to decline NZME's request to continue exclusive negotiations to buy the Australian-owned company.
And there was a risk of doing an injustice to Stuff-owner Nine Entertainment if its separate negotiations with a competing bidder, initiated during the exclusivity period with NZME, were delayed or curtailed by granting NZME an interim injunction to continue talks, a judgment says.
NZME had applied to the High Court to try to enforce the exclusivity agreement after Nine terminated talks last week as it engaged with another party. That followed NZME's announcement to the stock exchange that it was asking the government to allow it to buy Stuff for a nominal $1, assume its liabilities and continue the business' operations.
NZME argued Nine had breached the terms of an agreement reached on April 22.
The contract stipulated that Nine would not solicit or otherwise engage in negotiations with any other parties during this diligence period. Nine would have to notify NZME of any
competing proposals received and NZME had matching rights for any competing proposal received by Nine.
Nine said the contract had been "frustrated", potentially causing harm to Stuff.
In a judgment released today, Justice Sarah Katz said while the stronger argument appeared to favour holding Nine to the exclusivity agreement, the "balance of convenience" weighed against granting the interim orders sought by NZME.
Allowing NZME to maintain exclusive due diligence may increase the risk of Stuff ceasing operations, leading to significant job losses and loss of competition in the media marketpace, the judge concluded.
Justice Katz emphasised Nine's concerns that it was becoming increasingly difficult for NZME to conclude a deal with or without Commerce Commission clearance, and granting an interim injunction in NZME's favour would delay negotiations with the competing bidder, which had presented Nine with an "indicative" offer on May 6.
The judgment did not identify the competing bidder.
Time was a key consideration for Nine and Justice Katz noted May 31 in her judgment as a defining date.
The competing bid did not require commission approval and therefore, "in principal", could be concluded by May 31.
"There appears to be considerable force in Nine's submission that a further period of due diligence will not alter the fact that NZME will not be able to match the competing bid in at least one key respect, namely that the competing bid is not conditional on Commission approval. Given the tight timeframes involved that appears likely to be the critical (and determinative) difference between the competing offers," Justice Katz said.
Nine's evidence at last Friday's hearing was that all efforts to find an alternative way to proceed, avoiding the need for a formal clearance application, have now failed, she noted.
"The Commission has advised that it will not address the matter informally and requires a formal clearance application. Attempts to find a political solution have also been unsuccessful. For example, the Minister of Broadcasting has advised that no special legislation will be forthcoming to enable NZME to circumvent the Commission's processes."
Justice Katz said Nine could potentially suffer very significant losses if it was unable to conclude a transaction with the competing bidder by 31 May, as a result of delays caused by an injunction.
"Further, the consequence of making the interim orders sought would be to compel Stuff to provide NZME, its main competitor, with highly commercially sensitive information about its business. This would occur in circumstances where there no longer appears to be a realistic prospect of a deal between NZME and Nine being concluded by 31 May 2020 (barring a material change in circumstances)."
NZME initially sought three weeks to complete extra, or "top up", due diligence on Stuff, but the parties ended up agreeing on two weeks once NZME received all relevant information.
Nine was concerned it may be difficult to persuade the Commission to reach a different conclusion to that it had previously reached, and staunchly defended on appeal.
It said that it was not interested in any deal that would require commission clearance, "as this would likely involve a lengthy delay and an uncertain outcome."
The regulator ruled in 2017 that allowing NZME and Stuff to merge would diminish media plurality and concentrate too much power in a single organisation.
However, the decision has long been controversial, with many critics saying it didn't place adequate emphasis on digital tech companies - Facebook and Google - competing for advertising dollars with media companies.
Justice Katz said Nine had no obligation to conclude a deal with NZME, even if the
interim orders were made.
"The need to obtain clearance, the time it would take to achieve that, and the uncertainties around the outcome, all lend credibility to Nine's claim that it cannot and will not do a deal with NZME, regardless of the outcome of the present application. Quite simply, from Nine's perspective time has run out for the NZME deal. There is no longer any realistic prospect of the deal coming to fruition in a time frame that is acceptable to Nine, for the reasons outlined previously."
Following justice Katz' decision, NZME withdrew its new application to the commission for clearance to buy Stuff.
"Should there be a credible buyer for Stuff who will protect jobs, newsrooms and
mastheads then NZME believes this should be positive for New Zealand media," NZME said in a statement earlier this week.
"However, if this is not the case then NZME continues to believe that it would be best placed to sustain and support Stuff's mastheads, newsrooms and jobs in the interests of maintaining a robust fourth estate and plurality of voice in New Zealand."
Comment is being sought from NZME.