Market Insight

Nine Entertainment agrees Fairfax takeover deal in major Australian merger

August 13, 2018  | Subscribers Only

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms

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Major Australian media companies Nine Entertainment and Fairfax Media have agreed terms to merge their respective businesses. The new combined entity will operate under the Nine brand name and house assets including:

  • Nine’s free-to-air channels 9, 9Go, 9life and 9Gem
  • Fairfax’s newspapers The Age, The Sydney Morning Herald and The Australian Financial Review
  • Digital businesses such as online streaming service Stan, which is already a joint-venture of the two companies, and Fairfax’s real-estate platform Domain
  • Radio assets held by Fairfax via its majority ownership of Macquarie Media, which owns stations 2GB in Sydney, 3AW in Melbourne and 4BC in Brisbane.

Nine shareholders will hold a 51.1% stake in the enlarged company, with Fairfax shareholders to take the remaining 48.9% stake. The merged entity will have a combined value of A$4.2 billion ($3 billion).

Launched in 1956, Nine was the first TV network to begin broadcasting in Australia and is now the county’s second-largest free-to-air broadcaster after the Seven Network. Fairfax Media launched in Australia in 1831 when the Sydney Morning Herald newspaper first went to print, and Fairfax is now the country’s second-largest newspaper publisher after News Corporation. Fairfax newspapers are likely to remain under the merger, but the Fairfax name will disappear from Australia after 177 years in operation.

Our analysis

IHS Markit expects this merger to help drive future profitability for the combined companies, which are under increasing pressure from digital media. The arrival of online services has made for an increasingly intense competitive environment for the traditional media platforms of print, radio and TV. The merger will provide synergies for both companies and allow them to combine assets, streamline management and reduce costs to the tune of annual savings of around A$50 million within two years.

The new A$4.2 billion media company will also be better equipped to create and distribute more premium local content to engage advertisers and a wider audience. Given the merger brings together two of the largest digital audiences in the country and will reach over half of Australia via online, print, radio and TV every day, Nine has an opportunity to provide advertisers with access to segmented audiences on a large scale. The ability to scale not only its audience but also its revenues and earnings will facilitate new opportunities across all platforms and enable Nine to better compete with the likes of Amazon, Google and Facebook in its home market.

The proposal of such a merger has been facilitated by the Australian Federal Government’s removal of restrictions on cross media ownership in September 2017. Restrictions preventing companies owning newspapers, radio stations and TV networks in the same city would have previously prevented Nine and Fairfax from merging. As such, the merger will reduce diversity in an already highly concentrated Australian media-ownership landscape, which will now revolve around four companies: Australian Broadcasting Corporation (ABC), News Corporation, Nine and Seven West Media.

The merger still requires formal approval from shareholders and the competition regulator, the Australian Competition and Consumer Commission (ACCC). The ACCC’s decision will focus on how the change in market concentration will impact diversity in the market and whether or not Nine and Fairfax’s combined market power will be below an acceptable threshold. Subject to shareholder and regulatory approval, the merger is likely to be finalised by the end of 2018.

Geography
Australia
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