Nine Network’s takeover of Fairfax faces uphill battle

The world is littered with the carcasses of failed mergers but this deal has a chance given one set of managers will take control.

The Channel 9 helicopter. Picture: Troy Snook

In theory the Nine Network takeover of Fairfax could work brilliantly but in practice, around the world, mergers between struggling companies rarely succeed. What happens is that the bean counters see all sorts of opportunities to slash costs and make the merger “work” in that way.

In the process revenue falls and even more costs cuts are required and what is left is a skeleton of a business that will be snapped up at a low price by a predator that can pick the bones. For the merger to work, the first step will be for Fairfax to promote Nine Network programs and personalities via its print products. Conversely, Nine Network promotes The Age and The Sydney Morning Herald. It would have worked much more effectively years ago when both companies had stronger mast heads. Audiences tend to see through cross pollination that is generated by an ownership structure.

Unless it is done skilfully it will look artificial. Nevertheless, it is a step in the right direction. Fairfax is complicated because it has two enterprises that have the most potential which are only partly owned. Radio is a magnificent vehicle to promote both The Age and The Sydney Morning Herald and Nine Network personalities but the co-shareholder in Fairfax radio may have other ideas. And Domain, a profit powerhouse, is a separate public company — although Fairfax retains a 60 per cent stake — which lost its managing director Antony Catalano because Fairfax CEO Greg Hywood did not risk his job by standing up for his mate ‘The Cat’.

For the Nine Network takeover of Fairfax to really work the combined enterprise has to understand that it is now in the content generation and marketing business. The existing mast heads in print, television and radio are a good base but there are now so many new outlets opening.

The development of pay TV operation, Stan, was a good first step. Amazon has shown that content will drive retail sales if marketed correctly. Coles has woken up to the fact that the Amazon ‘Prime’ system is a potential winner. They might also become a content marketer as part of the retail strategy and that philosophy can extend into many businesses including telecommunications led by Telstra and Optus.

The key will be understanding these new forces and exploiting them. It is not easy for two large bureaucratic companies to come together and embark on a new strategy. The corporate world is littered with failed attempts but the fact that it is not a merger but a takeover gives it a chance because there will be one set of managers.

Footnote: Assuming there is no counter proposal, the first task of the new board will be to determine whether there are assets and mastheads that are redundant to the operating plan. But after about 18 to 24 months, if (and I emphasise if) the joint company is failing then it must be split up.

There are currently separate buyers for all the assets but if the combined operation is failing, then the sooner the assets are sold separately the better because their value will fall sharply. And those separate buyers will no doubt now be pondering a combined counter proposal but that will not be easy.

Robert Gottliebsen AM worked for Fairfax more than 30 years, was the founding editor of BRW, a director at 3AW and The Australian Financial Review’s first Chanticleer columnist.