NZME confident of Fairfax merger case

APN News and Media chief executive Ciaran Davis said he was confident the company could put a compelling argument to the Commerce Commission to allow the merger of its unit, NZME, with Fairfax New Zealand's local assets.

The Sydney-based company earlier outlined far-reaching plans to raise A$180 million in fresh capital from a rights issue, split off its New Zealand business - NZ Herald publisher NZME - into a standalone entity and to eventually merge it with Fairfax's New Zealand business.

Both companies operate in a near duopoly in newspapers up and down the country and compete head-to-head on their respective news websites, so a proposal will require Commerce Commission approval.

"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 in a conference call for analysts.

Davis said there were significant synergies to be gained from merging the two companies.

"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 that 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," he said.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the investment community would welcome the addition of a local media company to the ranks of the NZX.

He agreed with NZME chief executive Michael Boggs that it would be a merger of two equals.

"If you look at their earnings, they are pretty close," he said. Lister said the competition issues were not as great as they appeared.

"There is not as much crossover between the two businesses as you might think at first glance," he said. "I don't see it as a huge Commerce Commission risk," he said.

"Of course it is an industry that is going through rapid change, but still we don't have any media representation on the NZX so it is always good to get one of our New Zealand companies back on the New Zealand market rather than having it as an of a bigger Australian parent," he said.

APN said proceeds from its rights issue 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".