Analysis: Stuff bought for $1 - why the media firm now faces its biggest challenge

Stuff chief executive Sinead Boucher has made a massive call in signing an agreement to acquire the Stuff business from Nine Entertainment for $1.

The deal with Boucher follows revelations that NZME was not able to get Commerce Commission approval before a May 31 deadline to acquire the company for the same price.

That $1 figure has always been something of a misnomer.

Boucher is, in fact, taking over responsibility for the ongoing operating costs of a business being slammed by Covid-19.

On the positive side, Stuff isn't debt-loaded. But the organisation's liabilities sat at $73.9m at June 2019, of which $43.1m was classified as current and $15.6m from provisions related to lease incentives and onerous leases.

For the full year to June 30, 2019, Stuff reported a profit of $5.5 million, off the back of 12 per cent decline in revenue to $269m.

In the first half of 2020, it reported revenue of $129 million, up slightly on the previous period.

But this was all before the pandemic ripped a massive hole into the New Zealand advertising market, exposing the vulnerabilities of media companies besieged by online social media giants such as Facebook and Google.

At the Epidemic Response Committee in April, Boucher told Government representatives that Stuff revenue had halved during the lockdown.

Some of the money is slowly returning but, in the coming months, Boucher will face the pressure of keeping the business afloat amid the lingering economic impact of the virus.

Today, we have already seen the ugly side of these circumstances, with MediaWorks proposing 130 job cuts at its business.

This comes off the back of 250 job losses at Bauer following the company's closure in this market, and NZME's announcement that it had axed around 200 jobs.

Boucher had taken a 40 per cent paycut and staff salaries over $50,000 have been reduced by 15 per cent for 12 weeks, but Stuff has so far avoided the deep cuts seen elsewhere.

However, Boucher may have to start making some tough decisions once she takes over the business on May 31.

This all depends on how much advertising revenue returns and how quickly it happens. If things move too slowly, then Boucher will have little choice but to take out the scalpel and find places to trim.

This much was evident when she told Epidemic Response Committee that there was an immediate need for media to survive these next few months and that government support was going to be essential.

The Government has already stepped in with a $50m support, but this has been criticised for offering little support to print media companies.

Broadcasting Minister Kris Faafoi has said that another media package will arrive, but the details of this are still unclear at this stage.

The recent sale of Stuff Fibre gives Boucher likely access to several million dollars for a limited period of time depending on finance.

Keeping the business going is not cheap and will depend on further capital.

Given the uncertainty of substantial Government support arriving and the slow recovery of the advertising market, Boucher may find herself depending on the patience of financial backers as she navigates through the coming tough months.

So far, no details have emerged, although a variety of possible private equity interests have been named in recent weeks, ranging from Sydney-based Mercury Capital, which has close ties to New Zealand multi-millionaire Craig Heatley, and fledgling Delta Private Equity, an Auckland-based business.

When the Herald has approached various parties in recent weeks they have poured cold water on any interest in Stuff.

"You're barking up the wrong tree. You'd have to be pretty brave to get into that industry now," said one high-profile investor who asked not to be identified.

Should backers be willing to carry the company through, this could buy Boucher and her team some time. But it's anyone's guess how much that might be.

The other big question lingering over Boucher's acquisition is whether this might reopen the door to a potential consolidation opportunity with another media company.

Efforts by Herald-owner NZME to acquire Stuff ended on an acrimonious note last week with the High Court declining NZME's request to continue exclusive negotiations to buy its competitor.

However, that dispute was between NZME and Nine.

Boucher and NZME chief executive Michael Boggs have historically seen eye to eye on the plan to bring the companies together, so the door to negotiations is now slightly ajar rather than firmly shut.

Asked today whether he was open to the idea, Boggs stuck with the position he has long held on this issue.

"NZME believes a buyer for Stuff who will protect jobs, newsrooms and mastheads would be a positive outcome for New Zealand media and New Zealanders," he said.

"Many of us at NZME have enjoyed a constructive working relationship with Sinead over the years and all of us at NZME wish her the very best with this initiative."

Boucher mirrored Boggs' commitment to working together but said there weren't any plans to joining forces between the two companies.

"NZME is a key partner of ours in terms of distribution and printing, and it's really important for Stuff and indeed the wider industry that we continue to work well together. I'm very committed to that," Boucher said.

"Consolidation in terms of any proposed merger between Stuff and NZME is not on the table and I am very pleased to be returning Stuff to local ownership and to look at all the opportunities for our business to really thrive."

The one thing that's clear at the moment is that Covid-19 has utterly transformed the face of New Zealand media. The question now is how much more change we're in for.