Nine is buying Fairfax. The two Australian media companies announced this morning a proposed transaction that will see Nine acquire all Fairfax shares to create Australia’s largest media player.
Following the close of the transaction, which is still subject to approvals, Nine shareholders will own 51.1 per cent of the combined entity, with Fairfax shareholders owning the remaining 48.9 per cent. Or with the spin removed; Nine will own Fairfax.
For the second time in 12 years, Fairfax has entered into a transaction that makes it part of the biggest media business in Australia. The last time — its acquisition of Rural Press in 2006 — lead to a destructive run on the sharemarket after traders learned that a major investor and board member had a margin loan against their holdings. The loan reportedly came as news to some of Fairfax’s other directors.
The run against Fairfax’s share price continued for months, and the price never really recovered to anything like its lofty heights when News Corp bought seven per cent of the company at over $5 a share (largely to stop anyone else buying it).
The Fairfax-Rural Press acquisition represented the high water mark for the company, which got caught with too much debt when the GFC hit. It actually breached its debt covenants at the time, however, it was lucky to have friendly bankers.
It also bet its future on digital assets. It sold Trade Me in 2012, and floated Domain last year, but none of its other digital plays worked.
Nine and Fairfax are culturally very different businesses, which will make for an interesting challenge — although a cynic might argue that at least the Domain sales culture will fit neatly into Nine.
The fact that the Chairperson of Fairfax’s Board comes from the free to television sector — having worked for Ten and Nine — will at least help smooth the path.
The Nine acquisition follows several years of ownership uncertainty for Fairfax, including approaches by two US private equity firms that fell apart during due diligence.
The existing CEO of Nine will lead the combined business. Three current Fairfax Directors will be invited to join the Board of the combined business, which will be chaired by Nine’s Chairperson, and include two further current Nine directors.
The combined business will include Nine’s free-to-air television network, a portfolio of high-growth digital businesses, including Domain, Stan and 9Now, as well as Fairfax’s mastheads and radio interests through Macquarie Media.
In a statement to the ASX on Thursday morning, the two media companies announced they have entered into a Scheme Implementation Agreement.
The directors of Fairfax will unanimously recommend that Fairfax shareholders vote in favour of the scheme in the absence of a superior proposal, and subject to an independent expert concluding that the Proposed Transaction is in the best interest of Fairfax shareholders.
Under the proposal, Fairfax shareholders will receive 0.3627 Nine shares and $0.025 cash for each Fairfax share, implying a 22 per cent premium to Fairfax’s closing price yesterday. It is anticipated that the proposed transaction will be finalised before the end of this calendar year.
A spokesperson for Nine said: “For our audiences and employees, this means we will continue to be able to invest in premium local content across news, sport, entertainment and lifestyle. For our agency partners and advertisers, we will provide an expanded marketing platform with even greater advertising solutions underpinned by a significantly enhanced data proposition.
“For our shareholders, the merged business will generate an increasing percentage of its earnings from high-growth digital businesses that provide a compelling opportunity to generate both incremental value and cash flow into the future.”
The deal is expected to deliver annualised pro-forma cost savings of at least $50 million which will be fully implemented over two years.