Minister won't intervene with regulator over media merger, but deal could help

Thursday, 12 December 2019

The Prime Minister Jacinda Ardern response to a question about the NZME and STUFF merger.

Commerce Minister Kris Faafoi won't intervene to encourage or advise the Commerce Commission to look again at the case for allowing NZME and Stuff to merge, a spokesman for the minister says.

However, he said the Government could look at a 'Kiwi Share' undertaking floated by NZME that would commit the company to maintain certain, unnamed mastheads and 'protect journalists' jobs' if a takeover was allowed.

NZ First leader Winston Peters announced on Thursday that the party would support a 'Kiwi Share' deal at Cabinet, if one was backed by Faafoi.

An agreement between NZME and the Government over how NZME would behave after a takeover could potentially pave the way for the Commerce Commission to reach a different conclusion than in 2017 when it blocked the media merger.

**READ MORE

Deputy PM Winston Peters tried to lighten the mood with journalists when announcing his support of a major media merger. First published on December 12, 2019.

* Winston Peters throws in support behind Stuff/NZME buyout

* Australia's Seven said to be close to buying MediaWorks' TV business

* Government remains coy on media industry future**

It is understood the Government's role could be important, as the Commerce Commission is not itself able to enforce 'behavioural undertakings' from companies, but could potentially take a deal that had been agreed by the Government into account.

Talks with Stuff owner Nine are 'preliminary', says NZME.

However, the commission's original decision to reject the merger was based primarily on concerns about merging the Stuff and NZHerald.co.nz websites – rather than concerns it might reduce the number of newspapers that were published or journalism jobs.

NZME and Stuff were free to submit a fresh application to the competition watchdog to clear a merger, Commerce Commission chairman Anna Rawlings made clear to a select committee on Thursday morning.

'If an application was to come to us, we would obviously consider it fresh again, applying the same kind of review that we did last time in the market some years on,' she said.

NZME confirmed in a statement to the NZX that it was offering an undertaking which it likened to a 'Kiwi Share'.

'NZME looks forward to progressing the Kiwi Share proposal with Government and submitting an application for clearance to the Commerce Commission,' it said.

NZME has been focused on paying off debt.

Faafoi was still waiting to see the detail of the proposal, his spokesman indicated.

Peters was more lukewarm on speculation that Faafoi might back a merger of RNZ and TVNZ, saying it would need to see additonal detail.

NZME said its discussions with Stuff's Australian owner Nine remained 'preliminary'.

Jarden financial analyst Arie Dekker said the market could look favourably on a buyout of Stuff by NZME.

NZME was valued on the NZX at $82m on Thursday, after its shares rose 3.5 per cent in the wake of Peters' statement.

Dekker, who is one of only a few financial analysts tracking NZME, said it was not surprising NZME and Stuff were looking again at a way to combine.

'NZ First's support is premised on issues we see around the ongoing rationalisation of print that is occurring,' he said.

'A merger of the two entities provides the potential for greater sharing of resources and an opportunity to strengthen and prolong a print proposition in this country.'

NZME stopped paying dividends in 2018 to focus on paying off debt and did not succeed in lowering its gearing ratio at its last accounts, but Dekker said it had strength in its radio business.

'NZME will need market and bank support and we think they would look favourably on a deal that was well structured and gave confidence that some of the intended benefits of a merger could be realised.'

He would not speculate on a likely sale price for Stuff, saying that would depend how any deal was structured.

'Clearly, the earnings trajectory and the low values being put on print businesses suggests a reasonably low price – Stuff does not have as diversified a business as NZME.

'If Nine wants cash rather than shares for consideration then we do not see NZME as having to share synergies to the same extent, but a share deal and the need to determine relative values will add complexity.

'What happens with Stuff's considerable lease liabilities needs to be taken into account as well,' he said.