Old-School Media Unite in Australia to Confront Netflix Era

(Bloomberg) -- Australian broadcaster Nine Entertainment Co. agreed to buy Fairfax Media Ltd. for A$2.2 billion ($1.6 billion), creating a company spanning print, television, radio and a fast-growing streaming business that competes locally with Netflix Inc.

Nine shareholders will own 51 percent of the combined group, with Fairfax investors owning the rest, according to a statement Thursday. The cash-and-stock deal values Fairfax, publisher of the Sydney Morning Herald and the Australian Financial Review, at 93.9 Australian cents per share, 22 percent more than Wednesday’s close.

For more detail on the deal, click here.

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.

Nine stock tumbled 7.9 percent to A$2.32 at 12.12 p.m. in Sydney, valuing the company at A$2 billion, as investors fretted the broadcaster would be lumbered with low-growth papers. Fairfax soared 12 percent 86.25 cents.

Fairfax, named after an English immigrant who bought the Sydney Morning Herald in 1841, has lost 78 percent of its market value since the financial crisis as it cut swathes of jobs and wrote down the value of mastheads that were once prized assets.

TPG Capital and rival private equity suitors offered as much as A$2.9 billion for Fairfax last year, though both failed to submit binding bids after the publisher opened its books.

Nine, once part of the late billionaire Kerry Packer’s media empire, itself relisted in 2013 following a debt-for-equity swap.

The proposal is Australia’s biggest media deal since last year’s overhaul of laws to allow wider ownership of assets across television, radio and print.

Fairfax’s appeal is chiefly in its stakes in streaming service Stan Entertainment and property advertising portal Domain Holdings Australia Ltd., Nine Chief Executive Officer Hugh Marks, who will lead the group, said on a call with reporters. “That is the future,” he said.

The takeover will give Nine the 50 percent of Stan it doesn’t already own. The three-year-old business -- Netflix’s biggest local competitor -- has around 1 million subscribers watching shows such as “Billions,” “Younger” and “Unreal.”

Stan is approaching cash flow break-even, Marks said in February. Fairfax also owns about 60 percent of Domain. Marks said Thursday the new group “will reach more than half of Australia each day.” Nine’s shows include “Married at First Sight” and “The Block.”

Still, the immediate financial benefits of the deal to Nine appear limited: The merger is expected to deliver annualized savings of at least A$50 million over two years, and is expected to be earnings-per-share neutral for Nine shareholders.

It’s also not clear whether all the individual businesses have a future in the group. After the deal, Nine said it will “review the scope and breadth of the combined business, to align with its strategic objectives and its digital future.”

Nine is being advised by Jefferies Financial Group Inc., while Fairfax’s financial adviser is Macquarie Group Ltd.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net

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