Fairfax shares soar on $4b tie-up with Nine

Fairfax Media will be absorbed by Nine Entertainment by the end of 2018 in an historic deal the companies say will create Australia's largest integrated media player, with a combined value of $4.2 billion.

It represents the first major transaction since the Turnbull government secured changes to cross-media ownership rules in 2017, and will result in the Fairfax name disappearing from corporate Australia after 177 years.

Under the deal, Nine will gain control of Fairfax mastheads including The Sydney Morning Herald and The Age, the remaining 50 per cent of streaming platform Stan it didn't already own, plus Fairfax's 60 per cent stake in real estate portal Domain and its radio interests through Macquarie Media. Fairfax is the publisher of this website.

The companies said they expected the merger to deliver annualised cost savings of at least $50 million over the next two years. On a call with analysts, Nine CEO Hugh Marks said most of these savings would come from support functions, rather than content creation.

"We won't go into detail of the cost synergies in terms of each department," he said. "The $50 million number - most of that will come outside of core content creation, but from duplication of services."

Mr Marks said Nine's board would be willing to adopt Fairfax's Charter of Editorial Independence, which safeguards the media company's journalism from commercial interference. "It's an easy thing for us to subscribe to as a board," he said. "We have been in the journalism business for many years."

Fairfax CEO Greg Hywood, who was non-commital about his future, said: "There is nothing in this deal that would remotely risk the independence of our journalism". The deal would put Fairfax's newspapers "on an even stronger commercial footing", he said.

Under the proposal, Fairfax shareholders will receive 0.3627 Nine shares and $0.025 cash for each Fairfax share, implying a 21 per cent premium to Fairfax's closing price before the deal was announced.

Once completed, Nine shareholders will hold 51.1 per cent of the combined company, with Fairfax shareholders owning the remaining 48.9 per cent.

In early trading, Fairfax shares spiked by 9¢, or 12.5 per cent, to 85¢. Nine shares fell 21¢, or 8.3 per cent, to $2.31.

Fairfax DNA

Mr Marks will run the combined company, and Nine chairman Peter Costello will remain chairman. However,  Mr Hywood said "there will be plenty of Fairfax Media DNA in the merged company and the board".

In a note to staff, Fairfax CEO Greg Hywood said "there will be plenty of Fairfax Media DNA in the merged company and the board".Credit: Peter Rae

Three Fairfax directors will join the board of Nine.

Prime Minister Malcolm Turnbull welcomed the news. ""I think bringing them together will strengthen both of them," he said.

But former prime minister Paul Keating said it "will change the news landscape of Australia altogether" and described the deal as "an exceptionally bad development".

"Through various changes of ownership, no one has lanced the carbuncle at the
centre of Nine’s approach to news management. And, as sure as night follows
day, that puss will inevitably leak into Fairfax," he said in a statement. "For the country, this is a great pity."

On a media call, Mr Marks said Fairfax's mastheads would be managed at arm's length from Nine's existing news operations. "You get dis-synergies if you try to rub them all together," he said.

Mr Hywood said: "Fairfax media is always going to have a place in Australian media history. There is no doubt about that."

In an earlier statement, Mr Marks said the deal would create a "media business that will reach more than half of Australia each day through television, online, print and radio". He described it as a “ground-breaking merger – harnessing the strength, assets, quality and reach of two of the country’s most famous industry brands”.

Hugh Marks will be chief executive of the combined group.Credit: Chris Hopkins

“[It] will, of course, result in some duplication of functions and you will read about synergies that will be pursued by the business as part of this transaction,” he said, though he stressed the deal was not about cost reductions.

Mr Costello said in a statement that both Nine and Fairfax had 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," he said.

'Compelling value'

Fairfax chairman Nick Falloon said the deal represented "compelling value" for shareholders, allowing them to "maintain their exposure to Fairfax's growing businesses whilst also participating in the combination benefits with Nine".

Fairfax directors will recommend shareholders vote in favour of the scheme in the absence of a superior proposal.

Mr Falloon told Domain staff in an email it was “100 per cent business as usual” and he could see only “considerable upside” from the deal.

with Jennifer Duke