Media Talk: Prime and Seven In Discussion- A Merger in the Future?

  • Dec 12, 2019 AEDT
  • Team Kalkine
Media Talk: Prime and Seven In Discussion- A Merger in the Future?

Media affects our daily lives in paramount ways and is a critical element of today’s contemporary society and government. Its primary duty is to offer information and acquaint us with important events, as and when they occur. What’s remarkable is the fact that this information and delivery consequently affects our thought process and might influence the actions that we take. Moreover, it can signal for a need of intervention and potentially place ample pressure on regulatory bodies to act. This is primarily why media and its role matters to every economy.

The speedy evolution of technology has transformed the media and entertainment space into an efficient experience-led industry. However, with growing competition, media companies have noticeably been aiming to create customised experiences, develop agile business models, unlock innovation via technology, tap growth areas and improve business processes.

Australia’s Media Industry

Australia has one of the world’s most modern and diverse media industry, spanning across traditional and digital formats. Media delivery platforms include television, radio, print and digital media, the internet and the various forms of social media gaining massive traction these days. In the recent years, the Australian media industry has depicted an upswing.

While there has been an increasing competition from national and international entertainment, news and information platforms, the cinema sector in Australia has had an impressive YOY growth in the past 5 years, and the music industry has been growing since 2015 too. On the flip side though, television screen time has reduced and so has the consumption of print media- as digital publications.

Currently, Australia has a turbulent media market where audience and advertisers are exposed to an increasing array of entertainment options. A significant discussion in 2019 in the Australian media space has been the competition for regional audiences and increase in regional advertiser spends. It should be noted here that 36% of Australians live and work in regional Australia.

Moreover, in FY19, the Australian commercial television networks invested around $2 billion on content, of which 85% was spent on local content.

ACCC’s Intervention

Another development in the country has been from the Australian Competition and Consumer Commission’s (ACCC) end. In a report, this Australian watchdog has recommended the Federal Government that the foreign companies should be subject to the same rules as local broadcasters, including content quotas, advertising classifications and privacy laws.

Few media companies, like Seven West Media Limited (ASX: SWM) and Prime Media Group (ASX: PRT) urge the Government to adopt these recommendations, as they believe that in the event of these not being implemented, the digital platforms disruption in the broadcast media industry will fast-track, to the detriment of consumers, advertisers and thousands of Australian workers.

In this backdrop, let us acquaint ourselves with the developments around Seven West Media and Prime Media Group, and the proposed merger in dialogue:

Currently, Seven West Media employs 15,000 Australians and contributes $2.8 billion to the local economy. Since its formation in 2011, SWM has paid $420 million in corporate tax. Prime Media Group was focussed on the reduction of interest-bearing debt through 2019 and suspended distributions. The Net interest bearing debt (as at 30 June 2019) was $9.6 million, down $5.2 million compared to 2018. On the current forecast, PRT is likely to have extinguished interest-bearing debt before the end of FY20.

So, what’s connecting these two well-established Aussie media companies? Let’s find out!

SWM and PRT- A Merger?

A proposed merger of Prime Media Group and Seven West Media was revealed on 18 October 2019. PRT entered into a binding scheme implementation deed with SWM, its long-term partner, with a view to merging the two companies. This proposal was put to shareholders (subject to Prime shareholder approval and regulatory approvals) with the aim to create Australia’s leading, wholly owned commercial premium broadcast, video and news network with the potential to reach over 90% of the country’s population every month.

This merger cropped in a time where companies are forced to compete for audiences, and advertising revenue against metropolitan media companies with unrestricted access to regional markets via the NBN, and global technology and content giants like Apple, Google, Amazon and Netflix.

Under this Agreement:

  • PRT stakeholders will obtain 0.4582 SWM shares for every PRT share that they hold.
  • Post conclusion of the proposed transaction, current SWM stakeholders will own 90% of the combined entity.
  • Prime shareholders owning the remaining 10 per cent.
  • The merger is expected to be EPS accretive to both sets of shareholders on a pro forma basis following realisation of cost synergies, likely to be $11 million on an annualised basis and fully realised within 12-18 months of completion.

Proposed Merger Benefits

The agreement is expected to provide PRT stakeholders with the chance to retain industry exposure and gain from participation in a much bigger and relevant national platform and sharing in the upside of the collaborations that will be achieved. Other benefits of the proposed acquisition are:

  • The companies will together deliver significant value creation by offering advertisers with a distinct platform exclusively for superior audience reach through regional and metropolitan.
  • Revenue capacity of local audiences will be revealed.
  • Audience proposition through reinvestment in content will be enhanced.
  • Expansion of the digital news, information and entertainment offerings in regional markets.

PRT believes that if the proposed transaction is not approved, it will face pressures from declining revenues year on year (a trend currently in its fourth consecutive year), and competition for regional audiences and regional advertiser spends will only increase.

The Scheme Meeting will be held on 19 December 2019 and PRT shareholders are encouraged by SWM to vote in favour of the merger. Moreover, SWM notified that it intends to pay a fully franked special dividend of $0.03 per share once the scheme of arrangement is effective (to be paid on 6 January 2020).

Share Price Information

The below table highlights the stock performance of the two companies in discussion, after the close of ASX trading hours on 12 December 2019:

With the discussions around the merger accelerating, it will be interesting to watch the stance of the Australian media business unfold its development in a highly competitive environment in the coming days.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is sponsored but NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. We are neither licensed nor qualified to provide investment advice through this platform.

 

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