Suddenly there’s a chorus of experts chirping about the attractiveness of APN News & Media, but only after the surprise news that major shareholder, the embattled Tony O’Reilly and his family were forced to put their 39.1% stake on the market after “approaches”.
There’s much ‘informed’ talk about how the sale process will be accelerated, with the deal to be finished by around March 2009.
APN shares rose a further 10 cents this morning in a down market, to $3.08. That was after jumping to $2.98 Monday from Friday’s close of $2.41. The shares are hardly being rushed by hedge funds and the like looking for a bit of takeover tension. It’s perhaps a sign of how battered hedge funds are after the pressures of the past month to six weeks.
Could there also be a suspicion that Tony O’Reilly is a very reluctant seller and will try and use the market interest to get a new loan from somewhere and to avoid selling this very high quality asset?
The news brought a surge of brokers abandoning their gloomy view of the company because of the slumping outlook for media (especially newspapers where job ads fell by a nasty 35% in the year to October).
The sum total of our knowledge is that the broking community reckon that APN is worth more than the $2.41, but bets are being hedged until they see a trading update on Thursday.
But there’s nothing like a bit of corporate activity to help analysts see a bit of “sunshine”. Previously the outlook for APN was poor because of the headwinds of the slowing economy, falling advertising volumes and rates and pressure on margins from costs. But it operates principally in regional Australia, which was seen as being a bit more solid than metro areas, but it has 50% of a faltering metro radio network and its newspapers and radio businesses in NZ are smack in the middle of an economy already in recession which seems to be deepening. The outdoor business, the biggest in the country, was also expected to find it tough because of the current and deepening slump.
The Seven Network in partnership of association with West Australian newspapers was seen as the best bet, as Merrill Lynch explained this morning:
Potential buyers for the various parts of APN include Seven (very cashed up) and WAN, who could also be interested as a means of diversifying out of pure WA publishing and has scope to do so given its solid balance sheet. We think Fairfax and Macquarie Media would like certain businesses within APN, but we see limited scope for substantial acquisitions given both balance sheets are relatively stretched. News Corp and Lachlan Murdoch’s Illyria are also potential acquirers.
While we view APN’s assets as strategically attractive, we also view current credit market conditions/ gearing levels as prohibitive for most domestic names (including FXJ). However, we estimate that SEV and NWS could pay cash for IN&M’s stake.
JP Morgan said:
We believe a number of domestic media groups would have a strategic interest for all or parts of APN’s Australasian assets including cashed-up Seven Networks. Fairfax should in theory be an obvious suspect but we believe it comes too early as the group is still digesting the Rural Press merger and Southern Cross acquisition. We believe the acquisition of the 39% stake could represent a stepping stone for a strategic investor to gain control of the company and subsequently sell some of APN’s businesses (e.g. radio, outdoor) in order to partly fund the transaction. International media groups’ involvement is not to be ruled out especially if some of APN’s businesses had to be disposed of should the ACCC had competition concerns under a domestic combination scenario.
The last word should go to Goldman Sachs JBWere, whose associate, Goldman Sachs International is selling the APN stake with an assist from the ANZ, which is a banker to O’Reilly and probably wanted some of its money back.
Goldman can’t say anything now that’s on the advice side, but 10 days ago, JBWere media analysts issued a gloomy downgrade for Australian media stocks which we featured in Crikey.
Here’s a reminder of the outlook, as Goldman’s local office saw it in late October:
We have been cautious on the traditional, ad market-dependent media stocks for two reasons: (1) earnings risk (due to cyclical and structural headwinds); and (2) valuation. While valuations are looking more reasonable, we remain wary of the risk to consensus earnings. In our view, our latest earnings downgrades show this risk remains real.
Our preferences are: Telstra, News and Austar (the region pay TV business), but no APN.
We remain cautious on the traditional, ad-market dependent media stocks for two key reasons: (1) earnings risk; and (2) valuation.
We see downside risk to consensus earnings forecasts across the media sector. We believe a continued downward bias in estimate revisions will translate into further downside in share prices.
We see earnings risk stemming from cyclical pressures (near-term risk) and structural headwinds (longer term risk).
Regional newspapers (FY09 -1.3%): Reflects the economic impact on: (1) regional ad spend; and (2) classified volumes. While regional newspapers are not immune to the broader economic influences, growth is generally less volatile due to: (1) higher dependence on a local ‘direct’ advertising; (2) strong market position (i.e. generally a monopoly with few substitutes); and (3) lower susceptibility to the structural shift in advertising to new media platforms.
Metro Radio (FY09 -2.5%): No change to FY09 forecast of 2.5% decline. Already a highly fragmented and targeted media, radio’s low relative cost will keep it in good favour with advertisers. Hence, we expect the radio ad market to contract in line with the broader ad market. We have downgraded our FY10 forecast to reflect a late FY10 recovery.
Gloomy, and accurate from what we saw with the ANZ job ads series yesterday and that nasty 35% fall in newspaper job ads in the year to October and a sharp 12% in the month alone.
I wonder was Goldman Sachs International and the local lads are saying to clients? Get in cheap?