media mergers

Worsening conditions in the Australian TV and media markets have played a major part in News Corp’s US$1.1 billion impairments losses revealed by its deal with Telstra, merging Foxtel and Fox Sports . The two companies announced this morning that they had entered into definitive agreements regarding the merger, with News taking a 65% stake and Telstra taking 35%. Previously the two companies controlled Foxtel with 50% each and News owned Fox Sports totally.

Telstra also made an announcement today that, instead of sharing in News’ red ink, it would be booking a one off accounting-gain currently estimated at AU$263 million. That tells us that the two companies had widely differing accounting valuations of the Foxtel stake, likely that News’ was wildly over the mark.

The impairments are in addition to the US$227 million News wrote off the value of Foxtel in early 2017. Final details of the allocation of the losses will come in the March quarter accounts due in early May. News said in today’s announcement that the wide ranging write-downs reflect “its best estimate of the charges at this time”.

News explained that the need for write-downs was agreed upon during long range planning for the merger of Foxtel and Fox Sports.

“As a result of lower-than-expected sales of certain new products and broadcast sales at Foxtel, the company revised its outlook for Foxtel and Fox Sports Australia, which resulted in a reduction in expected future cash flows,” the statement said.

In other words, the outlook has worsened for pay TV assets, TV audiences and ad sales to the point where the balance sheet values for these are too high. News can scramble to set a realistic value on the merged company, but it doesn’t shake the suggestion that the only thing the business can do, once the dust of the merger has settled, is shrink. 

Peter Fray

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