APN, Nine in talks over potential $1.6bn merger

Nine Entertainment Co and APN News & Media have held talks about a potential $1.6 billion merger.

Nine Entertainment Co and APN News & Media have held talks on a potential merger.

Nine Entertainment Co and APN News & Media have held talks about a potential $1.6 billion ­merger that would create a free-to-air television, radio and outdoor advertising conglomerate.

It’s understood the two companies held preliminary and informal talks about a potential merger in the past four to six weeks.

While there is no guarantee of a deal, APN appears to be readying to participate in major media ­consolidation. The company is working through a spin-off of its New ­Zealand business, NZME, which is largely made up of structurally challenged newspapers and has been weighing on the company’s share price.

APN is also selling its Australian regional newspaper business, Australian Regional Media, as it seeks to pay down debt. If those two deals are executed, APN would be left with radio and outdoor advertising assets, which have been the two best performing traditional media categories over the past three years.

This would potentially be an ­attractive proposition for Nine, which has become almost solely a metropolitan free-to-air television business following the divestment in recent years of its Nine Live events division and ACP Magazines, now Bauer Media Group.

There is strong rationale for Nine to diversify into other mediums as it struggles with declining TV ratings this year and a weak free-to-air market. The company has been in periodic merger talks with Southern Cross Media Group for more than three years and seized a 9.9 per cent stake in the metro and regional radio and regional TV business in March.

But Southern Cross’s regional TV assets are severely challenged and could prove to be the sticking point in any deal. If Nine merged with APN it could maintain its content supply agreement with Bruce Gordon’s WIN Corporation and avoid buying a regional TV network, as the ad market deteriorates far more severely than in metro areas.

A merger between Nine and APN would not require media reform to be consummated. This is significant after the Turnbull ­government’s plans to abolish the population reach rule and two-out-of-three cross-media ownership law were killed by confirmation that a double dissolution election would be called for July 2.

The key hurdle to any deal is News Corp’s 14.9 per cent stake in APN. News Corp, which publishes The Australian, grabbed a foothold and potential blocking stake in APN in March 2015 .

News is understood to be circling the ARM sale, which is being run by Credit Suisse. If News refused to sell to Nine, a deal could potentially be reached via a scheme of arrangement, which requires 75 per cent of shareholder votes cast to be in favour of a deal.

For its part, News cannot take control of APN while its co-­chairman Lachlan Murdoch owns Nova Entertainment because that company controls two metropolitan radio networks, Nova FM and SmoothFM, which compete with APN’s KIIS FM and WSFM.

Nine has made it clear it does not intend to invest in print assets, so any progress on talks with APN would be dependent on the outcome of the NZME spin-off and ARM sale.

Nine has its own issues, as it grapples with the fallout from the 60 Minutes child-snatching disaster and a plunging share price, which is trading down by 26 per cent since the company announced a profit warning to the market on April 5. It’s believed APN has met with other metro free-to-air TV networks, although sources said talks with Nine were more serious.

Seven West Media is constrained from pursuing big deals by its balance sheet and major shareholder Kerry Stokes’ Seven Group Holdings is believed to be reluctant to commit a significant amount of new funds to traditional media, while Ten Network Holdings is capitalised at just $371 million, compared to APN’s $633 million market value.