Australian media execs strike deals despite Tony Abbott's stalled reform

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This was published 9 years ago

Australian media execs strike deals despite Tony Abbott's stalled reform

By Jared Lynch

Mothballs are still packed around the Abbott government's media reform package, but that hasn't stopped the pulse quickening for merger and acquisition activity in the sector.

This week Chinese billionaire Sun Xishuang bought Australia's second biggest Cinema chain, Hoyts, in a deal believed to be worth $900 million.

While Malcolm Turnbull's review is on hold, media executives have not been idle.

While Malcolm Turnbull's review is on hold, media executives have not been idle.Credit: Alex Ellinghausen

It came a day after Fairfax Media agreed to a $200 million merger of its radio assets with John Singleton's Macquarie Radio Network, and sold its Perth radio station, 96FM, to ARN News and Media for $78 million.

At the same time, the battle for third-ranked metropolitan TV broadcaster Ten Network Holdings continued to simmer.

Investment bankers were salivating at the prospect of an M&A bonanza after Communications Minister Malcolm Turnbull said earlier this year that he would examine media regulations, which many industry players say have become outdated.

Although there has been a steady flow of small deals in the sector worth between $5 million and $20 million, a flood of big deals between established household names has failed to eventuate.

This is because Mr Turnbull shelved the reform agenda, citing a lack of consensus among the main media companies.

Mr Turnbull had planned to review laws that ban mergers between metropolitan and regional television stations and the "two-out-of-three rule", which stops companies owning TV, radio and newspaper assets in the one city.

However, while the review is on hold, media executives have not been idle, opting to enter partnerships with rivals rather than launch outright mergers or takeovers.

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The arrival of Netflix, a US subscription video-on-demand service (SVOD), next year has prompted Australian media companies – the revenues of which have come under pressure from newer digital offerings – to join forces to launch similar services.

Australia's No. 1 commercial free-to-air broadcaster, Seven West Media, and local pay-TV monopoly, Foxtel, formed a much-anticipated video-streaming joint venture earlier this month.

The service will be a beefed-up version of Foxtel's Presto subscription service and will include television content from Foxtel and Seven. The companies will invest less than $10 million each in the venture.

This compares with Seven's closest rival, Nine Entertainment, tipping in $50 million in a $100 million partnership with Fairfax Media, owner of The Age, The Sydney Morning Herald and The Australian Financial Review.

Nine and Fairfax revealed their foray into SVOD, named Stan, last month. It is expected to begin streaming shows including Breaking Bad sequel Better Call Saul in February.

Other partnerships have been internal, with Seven merging its Perth TV newsroom into its premier print asset, The West Australian.

James Philips – a partner at law firm MinterEllison who has executed deals valued at more than $100 billion during his career – said companies were launching joint ventures to ensure their survival.

"At the end of the day if you're in a space that's been subject to as much disruption and moving of [revenue] shares… you have got to find new or more sustainable sources of revenue or you have to lower costs, otherwise you die," Mr Philips said.

"If you think of the need to leverage content across as many channels as you can in search of revenue and to survive the impact of the disruption to existing revenue streams, then that's quite likely to mean more co-operation."

Mr Philips said that didn't necessarily mean more M&A activity – even if the government overturned media reach and ownership rules, which he said have "constrained" bigger companies.

"We do hear from time to time [of] the coming bonanza and wave of media M&A activity and it usually doesn't happen, so I'm not sure we are going to see any particular flood of deals," he said.

"But in a world where there are both challenged business models and new technologies and new business models, we ought to see business responses to those and some of those business responses will, if you like, be structural and some of those structural responses will be M&A."

APN News & Media – a newspaper, outdoor advertising and radio company – has been busy in the M&A space, completing a series of deals that culminated in a $246.5 million move to take control of its radio assets.

This year it bought the remaining 50 per cent stake in the Australian Radio Network and New Zealand's The Radio Network from American joint-venture partner Clear Channel. At the same time, it has sold its 50 per cent in APN Outdoor for $69 million to Quadrant Private Equity.

The strategy was about gaining control of its growth assets, and the company further strengthened its radio network this week after it bought 96FM from Fairfax. APN News & Media chief executive Michael Miller said the company now joined Nova and Southern Cross Austereo as a national operator, with stations across five capital cities.

"That was a key motivation for the acquisition," Mr Miller said. "It puts us now on a very level and very competitive playing field by having Perth."

Macquarie Radio Network executive chairman Russell Tate also said the company had suffered by not being able to offer advertisers a national network, and merging with Fairfax's radio business was a key part of conquering that.

The deal will combine Australia's two leading talkback radio sations, 2GB in Sydney and 3AW in Melbourne, as well as Fairfax's five other stations across the country.

"Suddenly for the Macquarie Radio team we can genuinely offer a national product; we have never been able to do that," Mr Tate said.

"We have suffered because we haven't really been included in too many national [media] buyers."

But Mr Tate said the deal was mutually beneficial.

"Fairfax has included [Syndey's] 2UE in their national buyers, quite sensibly, quite rightly. It's part of their network.

"But they have probably suffered a little bit in that regard because certainly in recent times 2UE hasn't done that well. I think the revenue synergies for both sides, which are now one side, are very substantial."

The merger is expected to deliver about $10 million in cost savings a year and is scheduled to be completed in March 2015.

It will involve Macquarie acquiring all the shares in Fairfax Radio Network, in exchange for the issuance of new Macquarie ordinary shares plus $18 million cash.

Fairfax will own 54.5 per cent of the new business's shares, with Macquarie holding the remaining 44.5 per cent.

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