Nine Entertainment, Fairfax Media plan to merge

Two of Australia’s oldest media brands, Nine and Fairfax, are merging to create a new broadcast-publishing giant.

Fairfax has been struggling with declining advertising revenue as more readers migrated online and has laid off staff in recent years.

Fairfax Media plans to sell itself to Nine as part of a $2.1 billion cash-and-stock takeover in a move that would create a $4.2 billion company.

The combined company, to be called Nine, will be headed by Nine CEO Hugh Marks. The 177-year-old Fairfax family name looks set to disappear.

Under the deal, to be reviewed by the competition watchdog, Nine shareholders will retain 51.1 per cent of the combined entity; Fairfax shareholders will keep the rest.

Three current Fairfax directors will be invited to join the board of the combined business, which will be chaired by Nine Chairman, Peter Costello, and include two further current Nine directors.

The takeover is expected to deliver annualised pro-forma cost savings of at least $50m which will be fully implemented over two years.

The combined business will unite Nine’s free-to-air television network, digital businesses, including Domain, Stan and 9Now, with Fairfax’s mastheads and radio interests through Macquarie Media.

By noon (AEST) Fairfax shares had jumped 12 per cent to 86.25c, their highest level in seven years, while Nine had dipped eight per cent to $2.315 - a two-month low.

Subject to regulatory clearance, it is anticipated that the takeover will complete before the end of this calendar year. Directors of Fairfax will unanimously recommend that Fairfax shareholders vote in favour of the takeover in the absence of a superior offer, a statement to the ASX said.

Fairfax Media CEO Greg Hywood and Hugh Marks, CEO of Nine. Picture: Nine Network.

Under the Proposed Transaction, Fairfax shareholders will receive 0.3627 Nine shares for each Fairfax share held and $0.025 cash consideration per Fairfax share. This represents a 21.9 per cent premium to Fairfax’s closing price last night of $0.770.

Nine’s chairman Peter Costello said: “Both Nine and Fairfax have played an important role in shaping the Australian media landscape over many years. The combination of our businesses and our people best positions us to deliver new opportunities and innovations for our shareholders, staff and all Australians in the years ahead.”

Fairfax’s chairman Nick Falloon commented: “The Fairfax Board has carefully considered the Proposed Transaction and believes it represents compelling value for Fairfax shareholders. The structure of the Proposed Transaction provides an exciting opportunity for our shareholders to maintain their exposure to Fairfax’s growing businesses whilst also participating in the combination benefits with Nine.”

Traditional media companies are in a race for scale as they strive to keep up with the tech giants. From AT&T and Time Warner to 21st Century Fox and Disney and a bidding frenzy to control Sky, media mergers are in full swing in the US and UK.

The Fairfax-Nine takeover is the latest sign of how quickly technology is up-ending media consumption habits and reshaping the industry’s longtime model.

The deal marks the first major consolidation in the local media sector since the Federal government dropped its two-out-of-three rule last year.

The entry gate to the Channel 9 studios in Sydney’s Willoughby.

Nine chief executive Hugh Marks commented: “Nine’s strong operating momentum has allowed us to invest in the future of our business through each of 9Now, Digital Publishing and of course, Stan. This takeover with Fairfax will add another dimension, creating a unique, all-platform, media business that will reach more than half of Australia each day through television, online, print and radio. For our audiences and employees, this means we will continue to be able to invest in premium local content across news, sport, entertainment and lifestyle. For our agency partners and advertisers, we will provide an expanded marketing platform with even greater advertising solutions underpinned by a significantly enhanced data proposition. For our shareholders, the merged business will generate an increasing percentage of its earnings from high growth digital businesses that provide a compelling opportunity to generate both incremental value and cash flow into the future.”

Nine chairman and former Australian treasurer Peter Costello.

Fairfax chief executive Officer Greg Hywood said: “The Proposed Transaction for Fairfax reflects the success of Fairfax’s transformation strategy which has created value for shareholders through targeted investment in high growth businesses, such as Domain and Stan, and prudent management of our media assets. The combination with Nine provides an exciting opportunity to continue to drive incremental value well into the future.”

PM and journalists react

While Mr Hywood said there would be plenty of Fairfax media DNA in the merged company and the Board, Fairfax journalists reacted angrily to the news.

Sydney Morning Herald journalist Kate McClymont tweeted: “So after 150-plus years this is all we get: ‘I would like to thank everyone for their contribution to Fairfax’.’'

So after 150-plus years this is all we get: “I would like to thank everyone for their contribution to Fairfax” https://t.co/GHjXMRTX2f

— Kate McClymont (@Kate_McClymont) July 25, 2018

On a conference call with analysts, Mr Marks said “The board is more than happy to adopt the principles of the Fairfax independence charter.”

Fairfax management are set to address journalists and staff about the implications of the takeover this afternoon.

On a separate call with media, Mr Marks and Mr Hywood took questions from journalists. Marks said the combined company “offered solutions to advertising across those platforms television, digital, on demand, radio and print”.

The combined company would focus on the high growth digital entities including Domain and Stan. Any potential sale of legacy media assets such as regional newspapers was not ruled out.

Both Mr Marks and Mr Hywood said they did not expect any major hurdles with the Australian Competition and Consumer Commission as both companies broadly operated in different sectors of the media market.

“This increases our ability to offer solutions to advertisers and agency clients more integration and a better integrated story marketing platform,” said Mr Marks.

“The significance of that should not be overstated. We will be the leading advertising platform and marketer in the business. We classified Nine as a free to air television business, we are no longer.”

Mr Hywood said the deal was “well within the spirit of the government’s legislation last year,” adding “ultimately the deal proposed today is the best outcome for our employees, our business and ultimately our shareholders.

“It makes the combined entity a media company to reckon with.

“We believe Nine is a great home for the mastheads … with more opportunity for expansion.”

The aim for Stan was that the streaming channel would have between 2.5 million to 3 million subscribers, Mr Marks said.

“This deal is not about cost, this deal is all about investing in content for the future.”

A spokeswoman for the ACCC said the regulator will review the deal over a 12-week period in consultation with industry stakeholders.

“The ACCC expects to commence a public review of the proposed takeover, once it has received submissions and relevant information from Fairfax and Nine,” she said.

“The purpose of the public review is to assess whether the proposed takeover is likely to substantially lessen competition in any market.”

At the same time, the ACCC’s Digital Platforms Inquiry into the power of the tech giants continues.

Prime Minister Malcolm Turnbull welcomed news of the takeover, saying it would have to be approved by regulatory bodies such as the ACCC, but he did not expect it would face any hurdles.

“It’s obviously been made possible by the changes in media ownership laws that we’ve made,” Mr Turnbull told Tasmanian radio station LAFM. “To be frank, I welcome the announcement. Fairfax is a great Australian newspaper company, the Nine Network of course was the first television station to be on air with Bruce Gyngell you’ll remember doing the first broadcast.

“I used to work for the Nine Network in the past, in my journalistic and legal past, and I think bringing them together will strengthen both of them.

“It will strengthen both of them as television and online and print journalism. It’s a very tough, competitive environment nowadays.

“The arrival of all of the online news services has made the media so much more competitive than it used to be, whether it’s the competition for newspapers, or whether it’s the competition in the television area with streaming services like Netflix, so I think bringing them together enables two strong Australian brands with great, very long traditions, to be able to be more secure, so on that basis I welcome it.”

Trade group the Australian Association of National Advertisers -- which represents the country’s top advertisers including Telstra, Unilever, McDonalds, Toyota, and Woolworths -- welcomed the deal.

“The Nine-Fairfax deal brings together two of the largest digital audiences in the country, as well as big print, streaming, free-to-air and radio audiences. Assuming the deal receives regulatory and shareholder approval, the new company will have an opportunity to provide advertisers with access to quality, segmented audiences on a mass scale,” said AANA CEO John Broome.

“It’s the first major consolidation in the media sector since the Federal government dropped its two-out-of-three rule last year and we can expect to see other major moves.

“We’re optimistic that the Nine-Fairfax merger will create more value for advertisers, but we still need to see more detail to ensure that the deal enhances, rather than diminishes, the consumer experience.”

Nine is being advised by Jefferies as financial adviser, and Ashurst as legal counsel.

Fairfax is being advised by Macquarie Capital as financial adviser, and King & Wood Mallesons as legal counsel.

With Rachel Baxendale