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Feb 24, 2016

Media shares up in wake of reforms

In the short term, traders appear to have welcomed the changes, giving media shares a bump despite the long-term trend being down.


Readers of The Daily Telegraph and Australian in parts of the Emerald City this morning would have been excused for thinking that Rupert Murdoch’s minions had taken their papers and gone home. So severe were “production problems” that News Corp executives had had time to fax apologies to many newsagencies — something or other had delayed deliveries of both papers, but the “production problems” remained unspecified.

But luckily there was The Australian Financial Review. In it, Michael Miller, one of the two heads running News Corp Australia, complained, as News Corp does every few months, that the changes revealed yesterday leave the sports broadcasting anti-siphoning rules unchanged. These rules keep the jewels of Australian domestic sport out of the hands of the Murdoch clan’s Fox Sports and its 50%-owned Foxtel.

It’s a hardy perennial moan that former Foxtel and News Corp Australia boss Kim Williams made into an art form. You could plant it, put some newsprint-based fertiliser on it, hit it with a bit of water and up would shoot the complaints, regular as clockwork. This time around News has a tough decision: does it moan and groan and fight the government’s proposed changes, as it has been doing for more than a year, or swallow its pride (ha!) and accept them and move to buy the Ten Network and take it back to the bosom of the Murdochs after three decades away?

The reforms pose opportunities and challenges for different media players. Another group left somewhat jilted by the changes is Kerry Stokes’ Seven West Media and Seven West Holdings. While the changes could, in some parts of the media, lead to a flurry of deal-making, there’s not really a deal suitable for Stokes — the companies are skint, have too much debt and are running share buybacks in the market to support the prices and further cement Stokes’ control over both. The total value of the buybacks, the latest announced yesterday, will be a maximum of $155 million.

One group that does benefit is Nine, whose logical merger partner now is Fairfax Media. Fairfax is said to want a stable Nine board and share register before doing a deal.

Meanwhile, will Bruce Gordon get his buyout? He’s suing Nine over its streaming into regional areas, despite being one of the company’s biggest shareholders. He also has a 14.9% stake in Ten as well. He will have to resolve his TV interests and make up his mind about which one he wants before anyone will deal with him on buying out WIN.

In the short term, traders appear to have welcomed the changes, giving media shares a bump despite the long-term trend being down. Nine shares rose 3.2% yesterday, but are down 23% in the past year. Fairfax shares rose 2.6% yesterday, but are down 13.6% in the past year. Seven West shares were up 2.1%, but have lost 33% in the last 12 months. And Seven Group Holdings shares jumped more than 10% yesterday, though that’s probably got more to do with news of the buyback. They’re down 17% in the past year.

Lachlan Murdoch owns two radio networks as well as the smaller stake in Ten. A News Corp takeover (perhaps by Foxtel, although Telstra would have a big say in that and it is not interested in old-fashioned free-to-air TV) could help ease Lachie out of this play, which hasn’t gone well, except for the radio networks. Southern Cross wants to be bought — that’s why the shares have done best of all among the sectors shrinking players in the past week or so. Its shares rose nearly 7% on the news that the changes had been agreed to by cabinet and would be soon in Parliament. And it is the only one of the major media companies whose shares have risen in the past year — up 25%. Foxtel bought a 14.9% stake of Ten for 15 cents a share.

And then there’s the other media groups — Prime Media shares up 3.8% yesterday, down 50% in the past year. APN (regional papers and two radio networks) its shares jumped 7.5%, but are down 47% in the past year. Both companies are not reported to be high on any shopping list, although APN’s radio networks and NZ interests could be attractive to the right buyer. And finally News Corp, a company whose global interests mean its shares are affected by far more than what happens in Australia. They were down 1.1% overnight, and are down more than 30% in the past year.


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