APN and Fairfax pursue merger discussion

Sydney-based APN said it planned to separate its New Zealand business - <i>NZ Herald</i> publisher NZME - from the parent company and list it on the NZX and ASX in late June or early July.

Australia's APN News & Media and rival publisher Fairfax say they are in talks to merge their New Zealand businesses which, if successful, would create the country's biggest stand-alone media company.

Sydney-based APN said it planned to separate its New Zealand business - NZ Herald publisher NZME - from the parent company and list it on the NZX and ASX in late June or early July.

Separately, the company is pursuing a merger with Fairfax New Zealand, of a similar size, which has several titles including the Dominion Post.

APN has also launched a A$180 million capital raising to put its own balance sheet, and NZME's, on a better footing.

The merger is subject to regulatory consents, including Commerce Commission approval.

Michael Horton, former managing director of the Herald publisher when it traded as NZX-listed Wilson and Horton, said the merger plan was a sign of the times.

"It is really the only way, commercially, that they can survive," Horton said.

"It's a pity that it's come to this, because the rival newspaper groups have dominated the landscape for over a century.

"But times have moved on. It's a digital world and everything is changing."

Horton and fund managers welcomed the prospect of a local NZME board, to be headed by Sir John Anderson, with local annual meetings for shareholders.

APN News & Media chief executive Ciaran Davis said he was confident the company could put a compelling case to the Commerce Commission to allow the merger to go ahead.

Both companies operate in a near duopoly in the New Zealand newspaper industry and their respective news websites compete head-to-head.

"We believe that the businesses are very complementary in nature, so from that perspective we feel comfortable but I think that in light of global competition from new players we strongly believe that arguments that we put forward will be well received by the Commerce Commission," Davis said.

Davis said there were significant synergies to be gained from merging the two companies, as there had been by integrating NZME's publishing and radio interests.

"Specifically, through integration, there will be the ability to go to the market with complete solutions which provide national advertising across radio, print and digital channels," he said.

"That's been well received by our advertisers who are looking for a complete solution," he said.

In a trading update, Davis said market conditions in New Zealand had been challenging. Revenues had been down by 10 per cent at end of the first quarter but there had been cost savings from integrating the New Zealand businesses.

"We have seen some improvement in April bookings and the data suggests that this will continue into May," he said.

"The significant cost savings resulting from integrating the New Zealand businesses offset most of the revenue shortfalls."

Salt Funds Management managing director Matt Goodson said the addition of a large media company to the NZX would be welcomed by the sharemarket.

"We would absolutely welcome any listing of NZME in New Zealand," Goodson said. "It's another company and another choice [for investors] and it will be fascinating to see what synergies can be brought if the discussions between APN and Fairfax lead anywhere."

APN said the proceeds from its capital raising would be used to repay a portion of APN's corporate debt and, if the demerger proceeds, to facilitate the establishment of appropriate capital structures for APN and NZME.

Post separation, NZME would carry $102 million debt.

Fairfax chief executive Greg Hywood said the merger was an important opportunity for shareholders to be a part of the future of journalism.

"The combination of these two businesses would provide the necessary capability to continue investing in high-quality local news, sport and entertainment at a time when advertiser commercial investment continues to fragment across international media platforms that do not invest in local content."