Nine’s intentions for the former Fairfax regional and community newspapers — Australian Community Media (ACM) — have been one of the hottest topics to come out of its Fairfax takeover. Prime Media Group, Seven West’s regional TV affiliate, is one potential buyer, but would it have the desire or financial backing to do it?
It’s a fading asset. Revenue and earnings fell again in 2017-18 and the only way the slump is being offset is continued cost cutting, which was unsuccessful in the year to June. As for the newspapers, Fairfax has already cut all the easy costs it could from them. Any more will be politically dangerous for the buyer or buyers.
It would be an expensive deal. Analysts at Macquarie yesterday said the company, which has just been restructured to include The Canberra Times, would sell for $90 million to $135 million, depending on whether there is one or more sellers (multiple sellers would lower the returns). That’s a big price for a business which had a revenue drop of 8% and earnings drop of 21% in the year to June and are continuing to fall this financial year.
Fusion Strategy media analyst Steve Allen told Crikey that Prime is not an obvious buyer for a newspaper group, especially given that former News Corp executive and newspaper man John Hartigan has retired as chair.
“If Hartigan was still there, there’d be some sense in it … there are some synergies with collecting news, but print is a declining market for profitability and revenue,” Allen said. “Market analysts do not pitch newspaper assets as profitable. Regionals are not battered as badly as the metropolitan papers, but anyone who buys these assets would need to factor that in.”
Prime Media has some television assets in the same markets as ACM’s regional newspapers, where it could potentially share newsrooms and other resources.
But Allen said a more likely buyer would be one of the much smaller family-run newspaper or radio businesses around the country (which some operators believe will be better for the communities they serve).
Nine has made it clear it won’t hold onto Fairfax community papers or the NZ papers housed in Stuff for long. The question is whether Nine can find a buyer or buyers for both quickly, or will it be forced to run a beauty parade through an investment bank to get rid of them?
CCZ Statton Equities media analyst Roger Colman believes that Prime and the newspaper company will end up together, either with Prime buying ACM, or both being bought up by private equity.
“Nine doesn’t want to operate a standalone newspaper group in regional areas,” he said. “One way or the other, Prime will get these papers or get bought by the company that gets the papers.” He estimated the newspaper group would be worth between $70 million and $110 million.
Competition approval could pose a problem for such a deal, though, as it would for the more-likely merger of the Fairfax regionals with News Corp’s regional papers. The ACCC made it clear in its approval of the Nine-Fairfax takeover that it was not to be seen as a precedent.
Prime would also need a significant cash injection from its shareholders to buy the papers. Bruce Gordon’s WIN Network owns 14.99% of Prime (and an extra 4.9% via a financial derivative), so Gordon would have to make the biggest contribution to any shareholder fund raising, or see the value of his stake fall even further (his purchase price is well above 30 cents a share, so he is facing substantial unrealised losses).
A Nine spokesman declined to comment on any sale of ACM, but CEO Hugh Marks indicated any deals are likely to be done sooner rather than later when addressing staff earlier this week. Fairfax’s new owner has already made more than 150 positions redundant, yesterday announcing it would merge digital websites Pedestrian and Fairfax’s Allure Media, which publishes Business Insider Australia, Gizmodo and Popsugar. About 20 jobs will go as a result, including some editorial.
The deal can be done, providing the ACCC approves and Prime can convince shareholders or banks to put up the money for a deal. But, in the current climate, that’s may prove difficult– Prime would be buying a dying asset, rather than one that has a future.