Fairfax offer was news to us, says ComCom

First NZ Capital head of research Arie Dekker

NBR's Tim Hunter with the latest twist in the media merger

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nzmadd to my Stocks

The Commerce Commission says it was unaware of a $100-$120 million offer for Fairfax New Zealand until this morning.

Responding to questions from NBR about its knowledge of the offer and its relevance to the proposed merger with NZME, the Commission issued the following statement:

“We were first informed of the existence of this offer this morning, so we can’t comment any further at this time.”

It is understood that Fairfax NZ’s external legal counsel Sarah Keene of Russell McVeigh telephoned the Commission just after 7am to inform it of the offer, after NBR made inquiries last night.

The Commission is considering whether to authorise the merger, which involves two of New Zealand’s biggest media companies. Its draft determination on November 8 indicated it would decline the deal on public interest grounds.

Greg Hywood, chief executive of Fairfax NZ’s Australian parent Fairfax Media, was in New Zealand yesterday to take part in a Commission conference discussing the merger, which included confidential sessions offering the opportunity to disclose commercially sensitive information.

Fairfax released a statement to the ASX this morning referring to the offer letter, saying its merger agreement with NZME had exclusivity provisions preventing them entertaining an offer from a third party.

“Following media speculation today, Fairfax confirms that it has recently received a letter from a third party claiming that it has a client that would be interested in considering the acquisition of the Fairfax New Zealand business.

“The name of the client is not disclosed. The letter contains no offer capable of acceptance and Fairfax is not engaged in any discussions in relation to the letter.

“Consistent with its exclusivity obligations under the [merger implementation agreement], Fairfax is continuing to work with NZME to satisfy the conditions under the MIA and is not engaged with any third party.”

NBR understands the letter was sent on November 28 to Fairfax general counsel Gail Hambly and proposed an offer of $100-$120 million for Fairfax NZ, subject to due diligence.

Horton Media owner Matthew Horton said he was unaware of the offer.

"I would think that anyone bidding for Fairfax's assets in New Zealand would have to be motivated by a great mixture of bravery and stupidity. While I am almost certainly stupid enough to entertain the notion, I very much doubt that I'd be brave enough.”

A Dunedin-based media company has also denied any knowledge of the offer.

"We haven't put in any offers for it, no," Allied Press chairman Sir Julian Smith told NBR today. However, he said he would watch any developments "with interest".

The family firm owns several newspapers, including the Otago Daily Times, as well as a commercial printing business and a regional television station.

Analysts say the potential offer price looks low and opportunistic.

First NZ Capital head of research Arie Dekker said the terms of Fairfax NZ’s proposed merger with NZME would value it at $150 million, based on an NZME share price of 70c.

With the NZME share price have fallen to 55c since the deal was announced, “I guess at $120 million with the look through of where they’re trading currently it probably is somewhat in line.”

However, $120 million “might be viewed as opportunistic” and seemed a low number at just two times 2016 earnings before interest, tax, depreciation and amortisation.

“It has been dropping at a bit of a rate but boy, two times…”

Fund manager Richard Stubbs of Castle Point said the value of the price paid for a declining media business such as Fairfax NZ would relate to how it was going to be managed.

A buyer could try to recover their money in the short term by just winding the business down, “so therefore it’s opportunistic,” but someone seeking to invest for growth would have a different view of value given the risk.

Market sources speculate that a buyer for Fairfax NZ could come from private equity and would probably have experience in managing media businesses. 

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