Mergers in Media and Advertisement Space: First, Nine and Fairfax and now Seven West and Prime Media

In addition to the above, the ACCC may abstain from granting authorisation unless it is satisfied that either:

• The proposed acquisition does not likely lessen the competition to a substantial magnitude, or
• the likely advantage for the community from the proposed acquisition prevails over the likely public damage, including any lessening of competition.

On 8 November 2019, Australian Competition & Consumer Commission (ACCC) happened to decide for not opposing the proposed merger of Fairfax and Nine Entertainment Co. Holdings Limited (ASX: NEC), later to which from 10 December 2019, Nine Entertainment and Fairfax Media have merged to form one business known as “Nine”, and has become the biggest listed-media company on ASX, with an array of multi-platform assets across television, subscription video on demand, digital, print and radio.

Announced on 26 July 2019, NEC was of the view that the merger would unravel the potential for significant value creation through the blend of the content, brands, audience reach and data across the respective businesses.

Acknowledging Nine’s solid operating drive that has empowered it to invest in the future of its business; Nine CEO Hugh Marks believes that the merger with Fairfax will make an addition of another dimension, building a unique, all-platform, media business that will have its reach to above half of Australian population every day via different mediums like television, online, print and radio.

With the stage being set, let us get to the latest build-up in the Australian media industry.

The latest development in the Australian media sector took place in regard to another merger of two media companies, Seven West Media Limited (ASX:SWM, a national media company with commercial television, publishing, radio and digital operations and Prime Media Group Limited (ASX:PRT), through a 100% scrip-based Prime scheme of arrangement.

The merger was announced on 18 October 2019 with a view to delivering the following value creations for its parties:

• providing a single platform for the advertisers which shall deliver superior audience reach across metropolitan and regional markets;
• get to the bottom of the revenue potential of regional audiences;
• enhancing the audience proposition through re-investment in content and increasing the digital delivery of SWM’s offering in regional markets; and
• redevelopment of the expected cost synergies of $11 million on an annualised basis and potential revenue upside.

Figure 1 Source: Company's Report

For the implementation of the merger, the Scheme Implementation Deed contained customary terms and conditions on which SWM and Prime proposed to implement the scheme are as follows:

• • the independent expert concluding that the scheme is in the best interest of Prime shareholders;
• Prime shareholder approval;
• Court approval; and
• Regulatory approvals (including ACMA and ACCC).

On 9 December 2019, the Seven West Media declared its intentions to determine for the payment of a 100% franked special dividend of $0.03/share, subject to the scheme of arrangement through which SWM proposed to buy Prime becoming effective.

With an opportunity of prominent compelling reasons for the merger of Seven and Prime, if the scheme is approved and implemented; Prime shareholders were expected to benefit from receiving the Special Dividend (together with any available franking credits).

Following this, on 10 December 2019, anticipations surfaced that Bruce Gordon (with voting power in respect of 11.59% of all Prime shares) and Antony Catalano (with voting power in respect of 14.57% of all Prime shares) would not support the scheme as a result of which the scheme would not be approved.

Recently, the ACC has declared that it shall not oppose the proposed Seven West Media’s acquisition of Prime Media Group, based on the anticipated action that Seven West Media shall divest its Spirit and RedFM radio networks in regional Western Australia to a third party to meet requirements of the Broadcasting Services Act 1992.

With reference to it’s the scheme Meeting (wherein the Prime shareholders shall be asked to vote on the proposed acquisition) scheduled to be held on 19 December 2019, the Prime Board considers that the Scheme is unlikely to be approved by Prime shareholders by the requisite majorities on the basis of the proxies received from Prime shareholders to date.

However, the scheme Meeting is expected to progress as scheduled and planned be held at 10.00 A.M. (Sydney time) on 19 December 2019.

In case the scheme is not approved, it is anticipated that Prime and Seven shall consult in accordance with the terms of the Scheme Implementation Deed, and a further intimation shall be made with respect of the outcome of the consultation once finalised.

Bottom-line

On 19 December 2019, PRT stock was trading at a price of $ 0.175 with a market capitalisation of $ 67.77 million (at AEST 1:54 PM). On the same date, SWM stock was trading flat at a price of $ 0.335, with a market capitalisation of $505.19 million.

Prime looks forward to working with Seven in the future and appreciates a long-standing relationship with Seven.

With such influential speculations already surfacing, will we witness another merger in the Australian Media and Advertising space?

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