Analysts at Morgan Stanley have backed the move by Nine Entertainment to sell the New Zealand media business it bought for $1.1bn in 2003, despite only reaping $1 from the divestment.
“At this point in time, we view Nine’s exit from New Zealand as an incremental positive.”
Fairfax Media, which is now owned by Nine Entertainment, purchased the business for a price that equated to ten times its earnings before interest, tax, depreciation and amortisation.
Morgan Stanley said at that time, the bank’s view from analysts was that the logic was questionable.
But, in defending the move, the operations exceeded its forecasts for the first few years.
However, structural headwinds later caught up.
The analysts put the move into perspective by explaining that EBITDA was $115m in 2003 and increased to $176m in the 2005 financial year before declining to $15m by the first half of the 2020 financial year.
“We think it makes no strategic or financial sense for Nine Entertainment to own a New Zealand print or online business,” say the analysts.
Since Nine announced its intention to exit New Zealand, the operations have been treated as a “non-continuing business”
“In our mind, there was always some residual risk the business could suffer an even sharper-than-expected decline … and become a material cash drain for Nine.”
The analysts say the sale via a management buyout, expected to settle on May 31, removes that contingent liability.
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