Australia media giants Fairfax and Nine to merge to confront Netflix era

The new company, to be called Nine, will include Nine's free-to-air television network, Fairfax's radio and a suite of digital assets.
The new company, to be called Nine, will include Nine's free-to-air television network, Fairfax's radio and a suite of digital assets. PHOTOS: REUTERS

SYDNEY (AFP, BLOOMBERG, REUTERS) - Australia publisher Fairfax Media and Nine Entertainment announced plans to merge on Thursday (July 26), creating an integrated Australian media giant across television, online video streaming, print and digital.

The takeover unites two of the biggest and storied brands in Australian television and newspaper publishing as a new era of digital and streaming entertainment weighs on legacy media. Google and Facebook are now soaking up the advertising dollars that were once spent on printed pages and classifieds.

Under the deal, Nine agreed to buy Fairfax for A$2.2 billion (S$2.22 billion). Nine will effectively be the dominant partner, with its shareholders owning 51.1 per cent of the combined entity and Fairfax shareholders owning the rest.

The new company will include Nine's free-to-air television network, Fairfax's radio interests and mastheads - including The Sydney Morning Herald and The Age in Melbourne - and a suite of digital assets.

It will be called Nine, with Fairfax ceasing to exist, drawing the curtain on a venerable brand that has been an Australian staple for more than 170 years.

It is the first deal under a controversial new media ownership law passed in Australia last September which removed restrictions - in place to protect diversity - that prevented companies from owning newspapers, radio and television stations in the same city.

Major players in the market had long pressed for change, arguing the rules were outdated and did not account for digital media platforms and new publishers like Google and Facebook and video streaming giants such as Netflix.

Like its international peers, Fairfax has had its profits squeezed as advertising and circulation slump in the digital age, and it has been slashing staff and costs in recent years.

Fairfax, named after an English immigrant who bought the Sydney Morning Herald in 1841, has lost 78 per cent of its market value since the financial crisis.

Its board unanimously recommended the merger.

The merger will create at least A$50m in cost savings over two years, the companies said. It was not clear if the merger would lead to further job losses.

"The Fairfax board has carefully considered the proposed transaction and believes it represents compelling value for Fairfax shareholders," Fairfax chairman Nick Falloon said.

A merger "unlocks the potential for significant value creation by combining the content, brands, audience reach and data across the respective businesses", both companies said in a statement.

"The combination of our businesses and our people best positions us to deliver new opportunities and innovations for our shareholders, staff and all Australians in the years ahead," added Nine chairman Peter Costello.

Prime Minister Malcolm Turnbull told LAFM radio the deal "allows two strong Australian brands with great traditions to be able to be more secure".

'I WANT TO CRY'

Michael McCarthy, chief strategist at CMC Markets, said it was more like a takeover than a merger.

"Although the parties are terming it a 'merger', the terms could be interpreted as a takeover given the premium Nine will pay for control of Fairfax," he said.

Under the proposal, Fairfax shareholders will receive 0.3627 Nine shares and 2.5 Australian cents for each share they hold, representing a 21.9 per cent premium to Fairfax's closing share price of 77 cents on Wednesday.

Fairfax shares rallied 12 per cent in morning trade, while Nine slumped eight per cent.

The deal is expected to be completed this year, subject to approval from shareholders and the competition regulator, with current Nine chief Hugh Marks heading up the company and three Fairfax directors joining the board.

News of the deal came as a shock to Australian journalists, many of whom took to Twitter to express anger.

"Didn't see this coming. Huge changes for the Australian media landscape," said senior Fairfax reporter Kate McClymont, while Australian Broadcasting Corporation presenter Virginia Trioli tweeted: "They gave away the name 'Fairfax'? I want to cry."

The Media, Entertainment and Arts Alliance union blasted the plan as "bad for Australian democracy and diversity of voices in what is already one of the most concentrated media markets in the world", and called for it to be blocked.

Another recent media deal in Australia saw US broadcasting giant CBS become the new owner of the country's third-largest commercial television network, Ten, late last year.

Rupert Murdoch's News Corp is the other large media player in Australia and has made clear it is keen on adding free-to-air television to its portfolio.

Fairfax's appeal is chiefly in its stakes in streaming service Stan Entertainment and property advertising portal Domain Holdings Australia Ltd, Marks said on a call with reporters. "That is the future," he said.

Earlier this month, Fairfax and News Corp said they would begin using the same printing press, another example of traditional media companies putting old enmities to rest to survive the changed environment.

"Scale is the modernity mantra for media," John Hartigan, a former CEO of News Corp Australia who is now chairman of regional TV network Prime Media Group Ltd, told Reuters.

"You're seeing that play out globally with Disney and News Corp and Comcast, and it's not dissimilar on a national basis in Australia."

Murdoch, 87, is poised to complete a US$71 billion (S$96.7 billion) sale of selected 21st Century Fox assets to Walt Disney. Cable and broadband giant Comcast had also been bidding to acquire a major part of 21st Century Fox before pulling out.