Nine/Fairfax Merger superthread

Continuing the discussion from Nine Entertainment Co:

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I did not expect this, even though Fairfax and Nine have joint ownership of Stan.
For viewers, how will the merger (if it is approved) affect the content of The Age Green Guide on Thursdays and The Sydney Morning Herald’s Guide on Mondays? Will they still be able to cover programs on other networks and streaming services?

Can you own a paper and a tv licence in the same market?

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“The merged company will be called Nine”.

Looking at the merger documents, it seems that Nine pursued Fairfax. It’s baffling.

Relevant:

‘5/4’ rule ( ‘minimum voices ’)

“At least five independent media ‘voices’ must be present in metropolitan commercial radio licence areas (the mainland state capital cities), and at least four in regional commercial radio licence areas.”

Plus - only one commercial TV station and 2 radio stations per market.

The two out of three rule was abolished.

I thought that was in the package of reform that stalled in the senate

Seven does (WA)

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It passed the Senate in October 2017.

https://www.acma.gov.au/theACMA/changes-to-media-control-and-diversity-rules

I Suppose you can.

Ah yes they do too - forgot that.

The merger means the new company will own The Age, GTV, 3AW and Macquarie Sports Radio in Melbourne, and SMH, TCN, 2GB and MSR in Sydney, making it dominant in the media scene in Australia’s two biggest cities. And if the merger gets approved, Nine will be able to continue its 40-year association with Cricket Australia given Macquarie Media has radio rights to test and BBL matches for the six seasons.

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Holy shit.

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One positive is that I can’t imagine Hugh Marks allowing the loss-making Macquarie Sports Radio format to continue.

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From Nine:

MERGER OF NINE ENTERTAINMENT AND FAIRFAX MEDIA

The recommended transaction:

  • Creates Australia’s largest integrated media player
  • Enhances position with agencies and advertisers in a consolidating environment
  • Enables optimisation of, and incremental investment in, content across FTA, BVOD, SVOD and digital
  • Offers data solutions at scale combined with premium content
  • Combines Nine’s and Fairfax’s proven brand building capabilities to accelerate Domain’s growth profile

26 July 2018: Nine Entertainment Co. Holdings Limited (Nine) (ASX:NEC) and Fairfax Media Limited (Fairfax) (ASX:FXJ) are pleased to announce that the companies have entered into a Scheme Implementation Agreement under which the companies will merge to establish Nine as one of Australia’s leading independent media companies (Proposed Transaction). The Proposed Transaction will, subject to required approvals, be implemented by Nine acquiring all Fairfax shares under a Scheme of Arrangement (Scheme).

Following completion of the Proposed Transaction, Nine shareholders will own 51.1% of the combined entity with Fairfax shareholders owning the remaining 48.9%. The combined business will be led by Nine’s current Chief Executive Officer, Hugh Marks. Three current Fairfax Directors will be invited to join the Board of the combined business, which will be chaired by Nine Chairman, Peter Costello and include two further current Nine directors.

The combined business will include Nine’s free-to-air television network, a portfolio of high growth digital businesses, including Domain, Stan and 9Now, as well as Fairfax’s mastheads and radio interests through Macquarie Media.

Under the Proposed Transaction, Fairfax shareholders will receive consideration comprising:
• 0.3627 Nine shares for each Fairfax share held (Scrip Consideration)
• $0.025 cash consideration per Fairfax Share (Cash Consideration) together, Aggregate Consideration.

The Aggregate Consideration implies a:
• 21.9% premium to Fairfax’s closing price on 25 July 2018 of $0.770
• 22.6% premium to Fairfax’s one month VWAP to 25 July 2018 of $0.766

The Directors of Fairfax will unanimously recommend that Fairfax shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to an independent expert concluding that the Proposed Transaction is in the best interest of Fairfax shareholders.

Commenting on the Proposed Transaction, Nine’s Chairman Peter Costello said: “Both Nine and Fairfax have played an important role in shaping the Australian media landscape over many years. The combination of our businesses and our people best positions us to deliver new opportunities and innovations for our shareholders, staff and all Australians in the years ahead.”

Fairfax’s Chairman Nick Falloon commented: “The Fairfax Board has carefully considered the Proposed Transaction and believes it represents compelling value for Fairfax shareholders. The structure of the Proposed Transaction provides an exciting opportunity for our shareholders to maintain their exposure to Fairfax’s growing businesses whilst also participating in the combination benefits with Nine.”

The merger is expected to deliver annualised pro-forma cost savings of at least $50m which will be fully implemented over two years. The Proposed Transaction, on a pro forma basis, reflecting the full benefit of the cost savings, is expected to be earnings per share neutral for Nine shareholders, prior to any consolidation adjustments.

Importantly, the combination unlocks the potential for significant value creation by combining the content, brands, audience reach and data across the respective businesses, including majority owned group companies Domain and Macquarie Media. After completing the Proposed Transaction, Nine will review the scope and breadth of the combined business, to align with its strategic objectives and its digital future.

Nine Chief Executive Officer Hugh Marks commented: “Nine’s strong operating momentum has allowed us to invest in the future of our business through each of 9Now, Digital Publishing and of course, Stan. This merger with Fairfax will add another dimension, creating a unique, all-platform, media business that will reach more than half of Australia each day through television, online, print and radio.

For our audiences and employees, this means we will continue to be able to invest in premium local content across news, sport, entertainment and lifestyle. For our agency partners and advertisers, we will provide an expanded marketing platform with even greater advertising solutions underpinned by a significantly enhanced data proposition. For our shareholders, the merged business will generate an increasing percentage of its earnings from high growth digital businesses that provide a compelling opportunity to generate both incremental value and cash flow into the future.”

Fairfax Chief Executive Officer Greg Hywood said: “The Proposed Transaction for Fairfax reflects the success of Fairfax’s transformation strategy which has created value for shareholders through targeted investment in high growth businesses, such as Domain and Stan, and prudent management of our media assets. The combination with Nine provides an exciting opportunity to continue to drive incremental value well into the future.”

“We are confident that the strength of the combined management team and staff will ensure the continuation of our quality journalism.”

For the year to June 2018, Nine is expecting to report Group EBITDA at the upper end of the previously announced range of $250-260m, and to declare a second half dividend of $0.05 per share, fully franked. Fairfax is expecting to report Group operating EBITDA of $272–275m which is in line with analysts’ consensus, and to declare a second half dividend of $0.018 per share (franked at $0.0083 per share). In both cases, these declared dividends will not be affected by the Proposed Transaction.

So now they are bigger than Murdoch Co of portfolios. Wow. And has the Murdoch’s missed another boat? Missed out on Ten, and now won’t be able to grab Nine.

So when do we hear that Newscorp and Seven have come together?

What would happen to Fairfax’ subsidiaries? would they come under Nine?