oOh!Media and APN Outdoor to merge

Outdoor advertising will have a new heavyweight with the $1.6bn tie-up of oOh!media and APN Outdoor.

Ooh! Media CEO Brendan Cook will be managing director of the merged group.

Outdoor advertising companies oOh!media and APN Outdoor have agreed a $1.6 billion merger to create a new heavyweight in the sector.

Investors cheered the news, sending shares in both companies up around 10 per cent in response.

The two ASX-listed groups detailed the plan this morning, spruiking annual synergies of at least $20 million a year after creating a company that, based on last year’s results, would deliver pre-tax earnings of around $171 million.

Implementation costs of around $10m are expected ahead of synergies being achieved within two years of completion.

The friendly, all-scrip deal will be carried out via an oOh!media scheme of arrangement, which will see oOh!media (OML) shareholders receive 0.83 APN Outdoor shares for each oOh!media share held.

APN Outdoor (APO) ended Tuesday’s session at $5.40 a share, implying a share valuation of $4.48 for oOh!media.

The latter group had traded at $4.35 a share prior to the deal, with the merger-of-equals coming with a 3 per cent premium. The premium likely factors in a separate earnings upgrade released by oOh!media, which shows a $2m-$4m lift in its full-year guidance.

Both companies were leaping higher in lunchtime trade, with APN Outdoor jumping 9.3 per cent to $5.90 and oOh!media advancing 9.5 per cent to $4.76 by 12.55pm (AEDT).

Upon completion, the larger APN Outdoor will hold a fraction more of the company, with its shareholders controlling 55 per cent.

Both boards have unanimously lent their support to a deal that will see APN Outdoor chairman Doug Flynn head up the enlarged group’s board, while oOh!media chief executive Brendon Cook will serve as managing director.

The latter hiring means current APN Outdoor boss Richard Herring will be squeezed out.

Meanwhile, APN Outdoors’ Wayne Castle has been tapped as chief financial officer of the combined company, forcing out current oOh!media CFO Peter McClelland.

“The merger of APN Outdoor and ooh! media is a compelling opportunity for all shareholders,” Mr Flynn said.

“The businesses bring together complementary asset portfolios across key formats in metropolitan and regional markets to create a leading and diversified out-of-home and digital online media group in Australia and New Zealand.”

Post-merger, the outdoor advertising group will have 8,985 digital and 63,200 classic screens and panels across metropolitan and regional locations in Australia and New Zealand.

Current oOh!media chairman Michael Anderson said the benefits of the tie-up were too hard to ignore as media groups grapple with a challenging advertising market.

“We believe the amount of cost synergies expected to be generated, and the resulting EPS accretion will create substantial value for both shareholder groups,” he said.

“We are pleased that the enhanced balance sheet strength and financial scale, together with increased funding opportunities, will support the merged group’s ability to pursue future growth and digitisation opportunities.”

The deal is slated for conclusion in April next year, pending requisite regulatory approvals.

UBS and Cadence Advisory served as APN Outdoor’s advisers on the deal, while oOh!media was supported by Highbury Partnership and Macquarie Capital.

oOh!media was listed on the Australian Securities Exchange in late 2014 by Champ Private Equity and has experienced strong growth underpinned by converting more of its billboards and signs to digital screens. Its key strength is in retail and lifestyle advertising, with its sites located in shopping malls, gyms and cafes.

In June, the group bought 85 per cent of Junkee Media, a youth-focused online publishing company, for $11 million, and in October it acquired in-office advertising operation Executive Channel Network for $69 million.

The merger with APN Outdoor is the biggest in a series of land grabs in the sector. Among other recent deals, APN Outdoor bought rivals Metrospace Advertising and IOM for around $40 million in July, while Hoyts Group’s out-of-home advertising business Val Morgan Outdoor bought Active Media Group from Oaktree Capital Management in the same month, and APN News & Media bought the half of Adshel it didn’t already own in October for $268 million.

With Dow Jones