These are strange and colourful days for the traditional Australian media.
Our free-to-air TV and radio networks shamelessly pocketed a $127 million government handout last week through abolished licence fees, three billionaires and the Commonwealth Bank pushed the Ten Network closer to the edge, or a buyout, and the over-hyped Fairfax Media found itself friendless and without a realistic suitor.
Private equity is no longer interested in Fairfax, the embarrassed billionaires are trying to justify their Ten folly by seizing the network on the cheap, and the free-to-air networks (and radio) are now united in holding out their hands to Canberra for help.
That help — particularly if sustained in future years — could lift takeover prices if the media ownership restrictions are lifted, triggering an expected wave of consolidation.
But would any external investors chance their arm in such a scenario, or would it just be the existing dinosaurs hooking up to delay the inevitable a few more years?
Media remains the most family-influenced industry in the world — think Google, Facebook, 21st Century Fox, Viacom, Cox Communications, Bauer Media, Bertelsmann and Seven West Media, just to name a few.
The family tentacles in Australia will limit the scope of merger activity.
Seven West Media and Prime Media are both off the takeover list because Kerry Stokes effectively controls them.
Southern Cross is available, but it’s a regional TV operator with some attractive radio stations and free for anyone to buy. Nine was sniffing around last year but profitably abandoned that play. Nine is the only free-to-air network with a relatively open share register, save for Bruce Gordon, who is sitting on 15%, similar to his holding in Ten.
Apart from the silly shenanigans around Macquarie Media from John Singleton, radio looks moribund from a takeover point of view, although there were murmurings that Bauer offered Lachlan Murdoch $450 million for his Nova radio business in 2014. He’d be lucky to get that now.
HT&E (formerly APN News & Media) is 14.9% controlled by News Corp, which can’t move above that level without legislative changes but has already helped itself to the company’s struggling regional newspapers.
Only Fairfax has put itself up for market judgement, but now it seems none of the private equity boys want it.
The positive market reaction (especially for Nine and Southern Cross) to the licence fee abolition was arguably over the top as such a free kick highlighted how fraught the old media model has become.
If a government struggling with budget repair is prepared to be so unexpectedly generous, the industry must really be on its knees.
As expected, James Packer, Lachlan Murdoch and Bruce Gordon did a deal with the Commonwealth Bank on Friday night to toss another $30 million into Ten, which will take the amount drawn on the $200 million revolving credit with the CBA to $127 million. In return the CBA has done the bidding for its three billionaire clients and appointed chaps from PPB Advisory as receivers.
The extra $30 million was needed to keep the doors open at Ten, which needs legislative change from a fractious Senate next month if Bruce Gordon and Lachlan Murdoch are going to be able to land their prey.
In the most likely scenario Gordon will lead the purchase once the Senate abolishes the anachronistic 75% reach rule, with Lachlan Murdoch along for the ride in a legally non-controlling structure.
The more logical owner of Ten is Foxtel, but that is very difficult without the two-out-of-three rule being abolished. If three of three remains prohibited, as seems highly likely given Pauline Hanson and Nick Xenophon’s scepticism about Murdoch power abuses, Foxtel could only buy Ten if Lachlan Murdoch resigned from the News Corp board and payroll or committed to sell his privately owned Nova radio business. Bauer will no doubt be watching on with interest.
Perhaps the best example of the irrelevance of the legacy media (besides the looming $1 billion or more of losses over at News Corp for the year to June 30) has happened at Fairfax — no one wants to buy it.
After an 8% slump to $1.10 on Friday, the stock was halted in morning trade after the company released this statement confirming that TPG had abandoned its bid and rival firm Hellman & Friedman had also failed to lodge by Friday’s deadline.
Fairfax Media management this morning reiterated that it would now now proceed with its plan to spin off Domain. Chief executive Greg Hywood said in the statement the company has been making excellent progress with preparations to meet its timetable for completing the spin-off by the end of 2017 and has progressed all necessary regulatory approvals.
In a trading update released in this morning’s statement Fairfax underlined the need for the spin-off and why private equity walked — revenue will be down around 6% (or around $100 million to $1.73 billion) for the year to June 30. Earnings before interest, tax, depreciation and amortisation were estimated at $262 million to $266 million. Fairfax did not say that would be a fall of about 7% from the $283 million of EBITDA for 2015-16.
It said Domain had continued to improve earnings in the second half, driven by strong growth in its digital business, with overall revenues up 10%. But the slide in revenue in Fairfax’s newspapers and radio businesses here and in New Zealand continued. The metro media papers (AFR, SMH and Age) recorded a 12% slump in revenues in the year to June, the community papers dropped 11%, NZ, 4% (including currency adjustments), and Macquarie Radio had a 5% drop.
TPG had said it would keep the metro papers because they were essential to the success of Domain and provided a complementary marketing channel for the website listings. But the continuing revenue loss and weak outlook (and no doubt the need for another round of unpopular cost cutting) proved to be too much of a hurdle for TPG and probably for Hellman and Friedman.
Fairfax shares plunged after coming out of a trading halt of an hour. The shares fell more than 18% to a low of 91.5 cents in the minutes after the 11am restart. They bounced back to trade around 95 cents — off more than 13% from Friday’s $1.10.