'A real game-changer': Seven to consume regional affiliate Prime

Seven West Media and Prime Media insiders have brushed off concerns Australian Community Media executive chairman Antony Catalano could derail the broadcasters' plan to merge, with a major shareholder backing the offer.

Prime investors will be given 0.4582 Seven shares for each share they currently hold in the regional broadcaster. The offer, which is at a 3 per cent discount to the current share price, has been unanimously recommended by the Prime board and the broadcasters are looking to have the deal done by January.

New Seven chief James Warburton. Credit: James Alcock

Seven shareholders will hold 90 per cent of the combined business with Prime investors owning the remaining 10 per cent.

The deal will need to get the green light from the regulators and approval from 50 per cent of shareholders and 75 per cent of votes cast.

But sources close to Mr Catalano, the former boss of Nine Entertainment Co's Domain Group, said he had recently been acquiring a shareholding in Prime and was unhappy about the offer. There has been speculation among media executives that the regional newspaper boss has been looking for a tie-up with other regional businesses, such as TV broadcasters.

Billionaire investor Alex Waislitz, who backed Mr Catalano's purchase of ACM earlier this year, has a small stake in Prime through Thorney Investment Group.

However, Seven and Prime insiders rejected any suggestion Mr Catalano could derail the deal.

Seven chief executive James Warburton has committed to maintaining regional news bulletins after revealing a deal to merge with Prime Media in his biggest strategic move since taking on the role in August.

Regional networks have struggled with audiences migrating to streaming services and advertising revenues dwindling over the past few years, resulting in cuts to newsrooms and pressure to do corporate deals with bigger media businesses across print, TV and radio.

Mr Warburton said he had "no intention of stripping back on news [or] pulling bulletins".

He said the combined group would be a "powerful organisation with 6pm news across the entire market".

"[The deal] gives Prime shareholders the opportunity to be part of a larger broadcasting play," Mr Warburton said.

"It's highly strategic for us ... it's a real game-changer," Mr Warburton said, adding it would "halve" the work for media buyers who would be able to place advertising across the metropolitan and regional networks in one place.

He hoped Bermuda-based billionaire Bruce Gordon, a major Prime shareholder, would support a bid that "makes a lot of sense" and would be earnings per share accretive on a pro forma basis. Representatives for Mr Gordon declined to comment.

Spheria Asset Management portfolio manager Matthew Booker said the deal “makes complete sense” but believed Mr Catalano saw a bigger benefit in a merger with his newspaper business.

“There’s obvious synergies between Prime’s regional TV and the [assets] Mr Catalano has bought,” Mr Booker said, noting there would be the potential to reduce newsroom costs.

“I can see their angle, however I think the natural owners ... are Seven and Prime,” Mr Booker said.

He expected a significant re-rating of the business in the future on the back of the merger and while he hadn’t spoken to Mr Gordon he thought he was likely to accept.

“He’s sensible and wealthy for a reason... I think he’d see merit in the deal.”

Prime chief executive Ian Audsley said small regional media businesses were unable to achieve scale independently. The deal with Seven allows the broadcaster to reach 90 per cent of the population.

"In my view, sub-scale independent regional media companies will not survive in a battle against big balance sheet international and national businesses such as Google and Facebook and others," Mr Audsley said.

There are expected cost savings of $11 million, which will be realised between 12 and 18 months of the deal being completed. Mr Warburton said it was too early to discuss where these costs might come from, but flagged back-room operations as one potential area of savings along with having one board and reduced broadcasting expenses.

Seven has also sold its Western Australian radio stations to Southern Cross Austereo for $28 million, which Mr Warburton said allowed the deal with Prime from a regulatory perspective.

Morningstar analyst Brian Han described it as a "sensible acquisition" that had been in the pipeline for a long time.

"They've finally bit the bullet and decided to go for it," Mr Han said.

"In this day and age the concept of a regional affiliate is outdated," he said.

JP Morgan analyst Eric Pan said it was an accretive deal that would help strengthen Seven's balance sheet by lowering the leverage ratio.

"From that perspective, it's attractive," Mr Pan said.

"If you look at indicative data from Standard Media Index [SMI] the regional businesses have been holding up decently ... the metro businesses have been declining more," he said. SMI data measures advertising spend.

However, he said there was a possibility the deal would make Seven "less attractive" for takeovers - such as by global media companies - as the network was more leveraged towards TV. Seven is currently in discussions about selling its magazine arm Pacific Magazines.