NZME court action declined to enable third party bid to buy Stuff

Thursday, 21 May 2020

A High Court judge says a potential deal by a third party to buy media company Stuff could have been endangered if court action from NZME had been successful.

Justice Sarah Katz declined NZME's application to force Stuff's owner Nine Entertainment back to the negotiating table on Tuesday, and released her reasons on Thursday.

In her judgement, she said Nine walked away from exclusive negotiations with NZME after being approached by a second potential bidder.

Unlike NZME, the new bidder would not need to have Commerce Commission approval to buy the company.

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The new bidder is not named in the redacted judgement but it does say the deal could be closed by the end of May.

Justice Katz said forcing Nine back to the table with NZME could delay or endanger that deal.

Jack Hodder QC, right, counsel for NZME, arrives at High Court for its injunction hearing against Stuff.

'Further, the consequence of making the interim orders sought would be to compel Stuff to provide NZME, it's main competitor, with highly commercially sensitive information about its business.'

She said the overall interests of justice also had to be considered.

'For the reasons I have outlined, it appears that granting the interim orders sought by NZME may increase the risk of Stuff ceasing operations. This would have two consequences that are relevant to the overall interests of justice …'

She said that included a significant loss of competition in the media market and job losses.

The court action is the latest in the on-again, off-again merger negotiations. The Commerce Commission prevented the deal going ahead in 2016. Appeals to the High Court the following year and then the Court of Appeal in 2018 both failed.

NZME has been in negotiations to buy Stuff since September 2019, Justice Katz wrote in her judgement.

The two companies were working on an 'alternative transaction structure' that would have seen NZME hold a 'Kiwi Share' in Stuff. The proposal would have seen both editorial branches of the companies to kept separate and it was hoped that would keep the Commerce Commission happy.

However, by March the Government had not endorsed the deal.

Then Covid-19 hit and a resulting decline in Stuff's advertising revenue meant 'time became of the essence'.

The parties decided to head back to the Commerce Commission, seeking to fast track the process and NZME put in a non-binding indicative offer.

NZME was given access to Stuff's accounts to do due diligence and Nine gave an undertaking it would not enter into talks with another buyer. But Nine later called off the deal after an approach by a third party and another indicative offer.

That prompted NZME to launch its court action, alleging Nine had breached the contract that granted NZME exclusive rights to negotiate.

NZME asked the court to stop Nine from negotiating with the new buyer.

In court on Friday, NZME's lawyer Jack Hodder QC said the NZME deal could still go ahead. He said a last-minute intervention by the Government was still possible and the Commerce Commission could give its blessing.

However, Nine's lawyer John Dixon QC said there was no prospect of a deal with NZME. He said the time needed to get clearance from the Commerce Commission and the uncertainty around the outcome meant Nine couldn't do a deal with NZME.

Dixon said the broadcasting, communications and digital media minister Kris Faafoi had been approached by the companies but advised there would be no special legislation to let them bypass the Commerce Commission.

Dixon said the exclusivity agreement with NZME should be set aside, given the deal had no prospect of going ahead.

He said if Nine was forced to honour the agreement, it would allow NZME to have access to highly sensitive commercial information about its major competitor.

It could also affect the deal with the other party.

Justice Katz agreed and declined to grant the injunction.

'The need to obtain clearance, the time it would take to achieve that, and the uncertainties around the outcome, all lend credibility to Nine’s claim that it cannot and will not do a deal with NZME, regardless of the outcome of the present application. Quite simply, from Nine’s perspective time has run out for the NZME deal.'

Following the court's decision on Tuesday, NZME told the stock exchange NZX that it had withdrawn its application to the Commerce Commission to allow it to buy Stuff.

'Should there be a credible buyer for Stuff who will protect jobs, newsrooms and mastheads then NZME believes this should be positive for New Zealand media,' it said.

While NZME was disappointed with the decision, Stuff's owner Nine was upbeat.

“We welcome today’s decision and continue to operate Stuff and work for the best outcome for our audience, our people and the wider business,” said a Nine spokesperson.