Nine to lead in Fairfax 'merger' but News still in there

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By just over a couple of percentage points, Australia's Nine Entertainment is taking control of Fairfax Media in a 'merger' announced this morning.

In the second "submissive" deal in recent days, the publisher of The Age and the Sydney Morning Herald will hand its business to Nine for two-and-a-half cents and just over a third (0.3627) of a share in Nine, an outcome which delivers Nine a simple majority of 51.1-48.9.

But the affairs of the two will be increasingly intertwined with those of rival News Corp Australia, with which Fairfax has just announced printing arrangements, and with which News is a partner in an about-to-launch FTA TV channel.

The new company, valued at $4.2 billion, brings together Nine's free-to-air TV network, their digital publishing businesses - including Fairfax's interest in real estate portal Domain - radio interests through Macquarie Media, and Stan, in which the two are already partners.

There is seldom such as thing as a merger on equal terms, and this deal may be one in name only, although Nine and Fairfax are known to get on well together and have been nosing round the idea of doing more business together for a while.

Nine chairman Peter Costello will lead the new company, with Nine chief executive Hugh Marks running it in a similar role. No announcement has been made about the involvement of Fairfax chief executive Greg Hywood, and it is not known whether he will be staying on or riding into the sunset in his famous Maserati. A conference call for investors - taking place as I write this - may answer some of these questions.

There's an obvious logic to the deal as free-to-air broadcast companies confront a sunset of their own and the need to move their business from FTA and further onto the internet and the opportunities of addressable TV. And whatever the management structure, the outcome for all concerned is likely to be more positive than had Fairfax been sold off to a private equity company and split.

The deal - described as a 'scheme of arrangement' - will leave Nine shareholders with 51.1 per cent of the new company and those of Fairfax with the remaining 48.9 per cent. Three Fairfax directors will join the board with Costello and two current Nine directors. The offer implies a 21.9 per cent premium of yesterday's Fairfax stock exchange price of 77 cents.

Fairfax directors are recommending acceptance of the deal, failing a better offer and subject to an "independent expert" judging it to be in their best interests. Fairfax chairman Nick Falloon says the board considers the "exciting opportunity" represents "compelling value" for shareholders.

Shareholders in both companies have to vote on the deal which is subject to ACCC and other regulatory approval.

Last week Fairfax and News announced that they would share printing facilities in NSW and Queensland, with Fairfax shutting presses in Beresfield (NSW) and the Brisbane suburb of Ormiston. An announcement for Victoria is expected.

News and Nine have formed a joint venture company, initially to launch a business and lifestyle free-to-air TV channel later this year.

On Tuesday, head of Sky TV broadcaster Australian News Channel, Angelos Frangopoulos announced he was leaving the role to take a similar position leading Sky Arabia, only days after the departure of Anthony Fitzgerald from Multi Channel Network, which is owned by News and Network Ten.

• Competition watchdog the ACCC has launched an informal review under its merger process guidelines. Submissions were due by September 7, with November 8 earmarked to announce its decision or release a statement of issues.

Peter Coleman

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