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Australia’s new Media giant

November 29, 2018 | Expert Insights

One of Australia’s oldest newspaper owners, Fairfax Media ltd., was taken over by Nine Entertainment Co., forming the country’s largest media conglomerate.

Nine Entertainment Co. must now compete with Silicon Valley tech giants like Facebook and Amazon who are growing in popularity in Australia.

Background

Fairfax Media Ltd., named after an English immigrant who bought the Sydney Morning Herald in 1841, creates Australia’s largest multimedia company with assets spanning television, radio, print and subscription streaming. The company’s shares rose 2.3 percent on their last day of trading.

The company also owns regional and other major Australian newspapers, including The Age, Australian Financial Review and Canberra Times, majority stakes in property business Domain Group and the Macquarie Radio Network, and joint ventures in streaming service Stan and online publisher HuffPost Australia.

On 26 July 2018, Fairfax Media and Nine Entertainment Co. announced they had agreed on terms for a merger between the two companies to become Australia's largest media company. Shareholders in Nine Entertainment Co. will own 51.1 percent of the combined entity and Fairfax shareholders will own 48.9 percent.

The deal opens a new chapter for Australia’s first television station Nine, which was formerly owned by the billionaire Packer family and relisted in 2013 after a disastrous leveraged buyout and debt-for-equity swap.

Analysis

Fairfax Media’s big three mastheads, the Australian Financial Review, the Sydney Morning Herald and The Age have brought down corrupt politicians and union leaders laid bare misconduct in the financial industry and exposed some of the worst cases of corporate excess. Nine, one of Australia’s three main free-to-air broadcasters, is known for its sports and shows like Love Island and Married at First Sight. Unless opposites really do attract, there’s plenty of scope for an abrasive clash of cultures.

Fairfax’s traditional cash flow generator, such as the daily classified ads, has long diminished thanks to the Internet, and its digital advertising just isn’t growing fast enough. However, the company does have two trophies, which account for most of its value: a half share in streaming service Stan (Nine owns the rest), which is the main local rival to Netflix and has around 1 million subscribers watching shows such as “Billions”; and a controlling stake in property advertising company Domain Holdings Australia Ltd., which like Fairfax has a market capitalization of about A$1.4 billion.

The estimated savings of at least A$50 million ($36 million) from the deal wins Nine some breathing space as it integrates Fairfax’s newsrooms. Beyond that, the takeover hinges on how well Nine sells to advertisers the collective audience that watches, reads and listens to its expanded empire. That could involve scattering Nine’s property-renovation television shows with ads for Domain, or it might mean injecting Stan’s new content on every title in the old Fairfax portfolio.

The trouble is, nine isn’t immune to the pressures from new media, either: television’s share of ad spend in Australia has fallen from 30 percent in 2003 to 24 percent in 2017.

Fairfax shareholders are selling up close to the bottom. Fairfax shares were worth A$3.49 apiece in May 2007, but Nine’s offer in July valued them at just 93.9 cents. Staff at Fairfax’s more than 160 regional publications, including the Newcastle Herald, may also fair badly. Deal documents value all the titles at as little as A$100 million and describe the outlook as “relatively poor.” Nine’s timing was better. It secured a cash-and-stock deal when its shares were close to a record. They’ve since lost about one-third of their value.

Assessment

Our assessment is that Nine Entertainment Co. faces a challenging task with larger multinational multimedia companies in Australia. Amazon’s lucrative Prime services and Facebook’s industry-leading digital ad platform was difficult for Fairfax media to counter. We believe that Nine Entertainment is at an advantageous position because of its large domestic user base as well as a robust digital presence.