One of the biggest moves in the Australian media’s history is underway, with Nine Entertainment and Fairfax Media set to merge businesses.
Nine announced the news on the Today Show this morning, telling the audience the deal would conclude by the end of 2018. It is the biggest proposal to come out of the media reforms – which include the repeal of the two out of three and 75% media ownership rules, since they were passed late last year.
Nine will become one of the biggest media companies under the proposed transaction
The combined business will be led by Nine CEO Hugh Marks. The three current Fairfax directors will be invited to join the Board of the combined business, which will be chaired by Nine chairman Peter Costello. Fairfax Media CEO Greg Hywood will depart the business once the transaction is completed.
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Under the proposed transaction, Nine will establish itself as one of Australia’s leading independent media companies, owning 51.1% of the combined entity. Fairfax shareholders will own the remaining the 48.9%. The Fairfax Media brand will absorb under the new terms, and the new business – known as Nine – will make up 20% of above the line advertising spend across Australia.
The combined business will include Nine’s free to air network, digital businesses Domain, 9Now, its joint venture with Fairfax Media – Stan – as well as Fairfax’s mastheads, which includes The Sydney Morning Herald, The Age and The Australian Financial Review. It will also include Fairfax Media’s 54.5% holding in Macquarie Media.
It comes despite comments from Nine boss Marks last year, who rejected rumours of a Nine and Fairfax Media tie up.
Commenting on the proposed transaction, Nine’s chairman Costello said the combination of the two businesses and its people would allow for “new opportunities and innovations” for shareholders.
Fairfax chairman, Nick Falloon, added the Fairfax Board thought the proposed transaction represented “compelling value”.
“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,” Falloon said.
Nine boss Hugh Marks will lead the new business, under the proposed transaction
Nine’s Marks said Fairfax Media would add another dimension, creating a “unique, all-platform, media business”.
“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,” Marks said.
“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.”
In a note to staff, Marks described the deal as a “ground-breaking” merger which would harness the strengths of two of Australia’s biggest brands. He stressed the merger was not about cost reductions.
“Such a merger of two major media groups will of course result in some duplication of functions and you will read about synergies that will be pursued by the business as part of this transaction. But let me stress this merger is not about cost reductions.
“This merger is all about creating a business with the diversity and scale of revenues and earnings to be able to continue to do what we are all about. Create great content. Distribute it broadly. And engage our audiences and advertisers. Ultimately our people will all have new opportunities across more platforms, brands and identity to connect with audiences,” he said.
“We will of course be outlining more details of the merged business over the ensuing months, but for now we embark on this new expanded phase of our company’s journey, with a scale of resources and platforms to continue to build on our shared heritage and iconic brands.
“Make no mistake, these are exciting times for Nine. I look forward to joining with you all in making this merger an outstanding success. It’s a big deal. And it promises to substantially strengthen and reinforce what’s so great about our business into the future.”
Fairfax Media’s chief executive officer, Hywood, added: “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.”
According to a release on the ASX, directors of Fairfax Media will unanimously recommend shareholders vote in favour of the Scheme. Fairfax Media and Nine have now entered a scheme implementation agreement.
Nine and Fairfax Media have had a longstanding relationship, launching joint venture TV and streaming service Stan in 2014. Late last year the two companies and News Corp entered a co-operative agreement, which would see anonymised digital identities shared between the three platforms. The news comes a week after Fairfax Media and News Corp announced they had entered an agreement to share printing presses.
At close of business yesterday, Nine finished with a market capitalisation of $2.20b while Fairfax Media finished with a capitalisation of $1.77b.
For the year June 2018, Nine is expecting to report group earnings before interest, tax, depreciation, and amortisation (EBITDA) at the top end of the $250-$260m range. Fairfax is expecting to report group operating EBITDA of $272–275m.