$50m share raid puts Nine takeover in picture

Nine Entertainment has emerged at the centre of takeover speculation with a 3.4 per cent raid on its shares.

Generic images of Fairfax Media headquarters at Pyrmont, Sydney. Fairfax announced today it plans to cut 1900 jobs across the company and resize The Sydney Morning Herald and The Age into tabloid format, as well as implement a paywall on both newspaper's websites by March 2013. Pic: Dan Himbrechts

Nine Entertainment has emerged at the centre of takeover speculation with a 3.4 per cent raid on its shares last night.

The $50 million transaction saw Nine shares change hands at $1.60 each through a deal brokered by Deutsche Bank, sources said.

Several players are believed to be stalking the owner of the Nine Network ahead of changes to cross-media rules. Fairfax Media, the publisher of The Age and The Sydney Morning Herald, is among those that have been linked to a possible tie-up with Nine or at least taking a blocking stake in the partner of its Stan venture.

The deal drumbeats have been growing louder this week as Communications Minister Mitch ­Fifield introduces legislation relaxing cross-media ownership laws into the House of Representatives.

There is a growing urgency among media executives for deals reflecting the lack of organic growth opportunities, which is elevating the scale benefits of mergers as media buyers steer more advertising dollars to digital players Facebook and Google.

It is understood Fairfax has brought in investment bank Credit Suisse to work on a mooted corporate raid, while the publisher has been close to Macquarie.

Fairfax yesterday denied it was about to make a move on Nine. “Fairfax is not considering buying a stake — of any size — in Nine,” a spokeswoman said.

Even so, sources said Fairfax was concerned Nine’s shareholder Bruce Gordon could launch a full takeover of Nine.

Mr Gordon, who owns a 15 per cent stake in Nine, wants to merge his regional broadcaster WIN with Nine.

Mr Gordon would be prevented from buying more shares until any rule changes are passed through parliament.

Nine’s management is expected to resist the Bermuda-based billionaire’s attempts to further increase his influence.

The performance of Nine and Fairfax’s stock partly explains why the rumour is buzzing. Deep cost cuts and investor excitement about a partial float of Fairfax’s fast-growing digital real estate listings portal Domain had propelled Fairfax above $1 over the past year.

That strong run came to an end last June as trading conditions in Fairfax’s regional business sharply deteriorated, and the metropolitan newspaper business continues to be challenged by soft conditions in the print advertising market.

Nine’s share price was hit badly by a shock earnings downgrade in April, and commentary about a gloomy outlook for the free-to-air advertising market. It has never recovered and remains vulnerable because of its ownership structure with a wide open share register.

Shares in Nine gained 3.42 per cent to $1.51 at yesterday’s close, while Fairfax’s share price dipped 0.64 per cent to 77.5c.

While Fairfax Media chief Greg Hywood has said free-to-air television is “structurally challenged”, and a plan to buy a strategic stake in Nine was also dismissed by a company spokeswoman in August, Mr Hywood refused to rule out the possibility as recently as last month.

“The notion of industry consolidation has to work on a sustainable basis for us to be attracted to it (free-to-air),” Mr Hywood told Fairfax’s Australian Financial Review.

Proponents of a sale point out that Fairfax has shown a willingness to gain exposure to the free-to-air television sector and the premium video space by striking commercial agreements with Nine such as internet-based TV service Stan, a $100 million-plus joint venture.

For Mr Gordon, a deal with Nine would hand him more valuable metropolitan TV licences, and eliminate his reliance on programming supplied to his privately owned WIN under a costly affiliate deal with Nine.

Nine produces some of the most watched programming in the nation, from reality franchises The Voice and The Block to sports including exclusive free-to-air access to rugby league, Test and one-day international cricket matches.

Unlike the regional TV advertising market, which is contracting at a rapid clip, advertiser demand in the much bigger metropolitan TV ad market remains resilient albeit stuck in a low single-digit growth zone.

With battle lines being drawn between major players and restrictive media ownership laws set to be removed, the sector could see merger and acquisition activity sooner rather than later.

Talk also continues about a potential merger between Nine and radio and TV group Southern Cross Austereo as a means of providing increased scale and cost efficiencies, as traditional media continues to face structural headwinds. For Southern Cross, there is also value uplift by switching its ­affiliate deal from Ten to Nine.