The government is poised to pass the biggest changes to media regulation in more than 30 years and there are a number of potential deals which could reshape the sector with the first out of the block a possible resolution of Network Ten’s ownership.
The changes, which could pass through the Senate as early this week, represent a chance for media businesses to recalibrate and try to build a company, via previously disallowed mergers, to compete with the likes of Facebook and Google which have taken not only the lion’s share of new advertising, but the content, made by traditional media, for free.
The deal on the table is the one that’s been talked about most in the last two months following Network Ten’s collapse into administration.
Bruce Gordon and Lachlan Murdoch, co-chair of News Corporation, are expected to lob a bid for Network Ten by Friday’s deadline. The pair have long coveted the free-to-air broadcaster, which is in receivership – the two, plus James Packer, had refused to back a new $250 million cash facility to keep the network running.
However, Gordon and Murdoch face competition in the form of private equity giants Oaktree Capital Management, Anchorage Capital Group and Lone Star Funds, which have all picked up an information memorandum on Ten. US studio CBS has also picked up the broadcaster’s financial details.
Gordon, owner of regional broadcaster WIN Corporation, relies on Ten for much of his broadcaster’s content under an affiliation deal signed last year.
The pair have decided to work together on the takeover, forming a joint-venture. However, there is a potential hiccup in the plan in the form of a review by the competition watchdog.
The Australian Competition and Consumer Commission is examining a potential Gordon-Murdoch takeover of Ten – it’s believed the concerns largely lie with Murdoch because of his role at News Corp, Australia’s largest media company, and his personal ownership of radio station Nova.
News Corp is the largest publisher in the country, with titles such as The Australian, The Daily Telegraph and Herald Sun, it owns 50 per cent of pay TV business Foxtel, which despite its challenges still makes a lot of money and yields a fair bit of influence over advertising. It also owns Fox Sports, Sky News, has a majority stake in REA Group and is Here, There & Everywhere’s second largest shareholder.
The question for the regulator is would allowing Murdoch to buy 50 per cent of Ten substantially lesson competition?
The ACCC is due to rule on the deal, or release a statement of issues, on August 24.
Should chair Rod Sims reject the deal, it could possibly open the door for Gordon to acquire Ten on his own, and it could set a few more wheels in motion.
If Murdoch isn’t allowed to be involved in a takeover of Ten, Gordon can have a run himself. He may need to free up capital to do so.
Enter Nine Entertainment and Fairfax Media, publisher of The Australian Financial Review.
Gordon is Nine’s largest shareholder with just under 15 per cent of the broadcaster. If Gordon needs to free up capital, he could sell his stake in Nine, worth just under $200 million, and Fairfax could be a buyer. Gordon also has a further 5 per cent via a cash-settled share swap.
Fairfax and Nine have long been rumoured as potential partners. The pair both have strong balance sheets; Nine has long-term debt of around $300 million and Fairfax has just under $150 million. Sources believe any tie-up would probably be a merger, rather than a buyout given neither is likely to want to increase debt substantially – Nine’s market capitalisation sits around $1.3 billion, while Fairfax’s is at $2.3 billion.
However, Gordon could potentially hold up any deal if he has the money to buy Ten without selling his stake in Nine.
Shareholders would also need to be convinced that putting Fairfax and Nine together would strengthen the combined entity’s long-term prospects.
Putting two companies together doesn’t make the structural issues facing media magically disappear, but greater scale could lead to a better outcome.
There is also potential for the deal media bankers have long dreamed of – a three-way merger between Nine, Fairfax and Southern Cross Austereo.
Nine and Southern Cross explored a takeover back in 2015 and as TV affiliation partners the deal makes sense. But Southern Cross has grown much stronger since then, reducing debt, giving over control of its regional TV news to Nine and focusing on radio. The problem would be Southern Cross’ desire to increase its exposure to TV and get into print – the company is known to be looking at acquisitions, but is focused on adjacent acquisitions, such as more radio, or outdoor advertising, which it can better cross-promote with its own radio assets.
It should also be noted Nine had a near 10 per cent stake in Southern Cross which it sold last year.
Again, as Nine’s largest shareholder, Gordon could play the role of wrecker. If he’s able to buy Ten without selling his stake in Nine, he could prevent his opponents getting a leg up and merging, blocking any potential transaction.
Another deal many believe is a given is Seven West Media taking over its regional affiliate Prime Media. Seven has had great success running its Queensland regional television business and many believe there are lots of cost synergies the Kerry Stokes-controlled broadcaster could get out of a purchase of Prime. The only roadblock to a deal would be Seven’s long-term debt, which sits at just over $830 million.
Potential deals are complicated and may never eventuate at all. The only guarantee is everyone is talking to everyone about what’s the best way forward for media.