Fairfax, NZME 'not standing still' as court sides with Commerce Commission in blocking merger

Tuesday, 19 December 2017

Justice Robert Dobson (left) and lay adviser Professor Martin Richardson preside over the High Court appeal in Wellington in October.

Fairfax New Zealand and NZME's failure to get a block on their merger overturned in the High Court won't be a trigger for significant cost cutting or job cuts, Fairfax NZ chief executive Sinead Boucher says.

Boucher also expected there would be opportunities for further partnerships between the companies outside of a merger.

NZME did not rule out a further appeal in a statement to the NZX, which would need to be to the Court of Appeal.

The High Court on Tuesday rejected Fairfax and NZME's appeal of the Commerce Commission's refusal to authorise their merger, with Justice Robert Dobson accepting most of the reasoning the commission gave for its ruling in May.

Both media firms have been cutting costs in response to the global drop in traditional advertising income, while forging partnerships in some areas.

Fairfax Media chief executive Sinead Boucher says its strategy will be unchanged.

* Commerce Commission opens defence of NZME/Fairfax merger ruling

* Media merger wouldn't change NZ reporting, Fairfax and NZME say**

Fairfax, NZME, MediaWorks and Television New Zealand set up a joint venture, KPEX, in 2015 to provide a 'one-stop-shop' for people buying digital advertising in a bid to better compete with overseas online giants such as Google and Facebook.

Since 2014, Fairfax and NZME have also begun sharing some print production and distribution runs to avoid duplicating costs.

'Obviously we remain very competitive around our journalism, but we are fortunate that in New Zealand the main media companies can operate really collegially where there is shared advantage,' Boucher said.

'I'd expect we would continue to look for areas to cooperate in – I don't see any reason that would change.'

Boucher said the court ruling would not make any difference to the way Fairfax NZ pursued its strategy and business plans 'given how long it has been since we got the original decision'.

'Our focus continues to be on building out our digital products and ventures, and actively seeking new partnerships to allow us to leverage our large audience into new areas of revenue.'

NZME investment relations manager Paddy Walker said it would not be commenting further on the court ruling until the full reasons for the decision were released.

In statement to the NZX, chief executive Michael Boggs mentioned the possibility that NZME could consider a further appeal after it had received the commission's full decision.

But both Fairfax NZ and NZME indicated they had not been waiting on the High Court's decision to make changes to their businesses.

Boggs said while the merger offered benefits, it would continue to examine 'shareholder value enhancing strategic initiatives leveraging our strong brands and audience reach'.

Fairfax chief executive Greg Hywood also said the merger would have brought synergies that would have 'sustained journalism at scale in New Zealand for many years', but its New Zealand business had continued to implement its own strategy and shape a separate future.

Boucher said Fairfax NZ had taken 'massive steps forward' as it diversified its revenue streams.

'The last several weeks alone have seen us launch Stuff Pix and Done, as well as energyclubnz, and there will be more to come,' she said.

In his two-page summary judgment Justice Dobson backed the commission's decision in May not to authorise the merger, and ruled the watchdog was entitled to costs from the media firms.

The appeal hinged in large part on whether the watchdog had the authority or expertise to consider non-economic detriments that might arise from the merger, for example the risk to democracy from a reduction in 'media plurality' or diversity.

The High Court ruling affirmed that the commission did have that authority, once it had identified a risk that the merger might substantially lessen competition.

Commerce Commission chairman Mark Berry welcomed the 'confirmation of its jurisdiction' saying the merger investigation and appeal had been a significant and resource intensive piece of work for the watchdog over the past 18 months.

'The court's ruling confirms we have the jurisdiction to consider detriments beyond those which are economic and that we can consider the wider public benefits when assessing merger authorisation applications,' he said.

The commission did not entirely escape criticism in the summary judgment.

During their appeal, Fairfax and NZME had taken aim at the processes the commission followed during its original investigation of the merger, arguing it had effectively instructed consultant BDO to produce a report critical of the merger by asking it to pick holes in a report compiled for the media firms by rival consultant PwC.

Justice Dobson agreed the Commerce Commission could have managed its instructions to BDO 'more felicitously' but said it did not lead to a 'justiciable error'.

Unlike the commission, the High Court also found there was a no likelihood of a substantial lessening of competition in the Sunday newspaper advertising market if the merger went ahead, and it dismissed the commission's contention that the media companies might introduce a paywall for online news if they were allowed to combine.

But Justice Dobson said that in all other respects the court agreed with the conclusions the commission had reached in May when it declined to authorise the merger.

Fairfax NZ's publications include Stuff, The Sunday Star-Times, The Dominion Post and The Press. NZME is listed on the NZX and owns the New Zealand Herald as well as a large number of radio stations.

NZME's shares were unmoved on the NZX at lunchtime on Tuesday, with its shares last having traded at 87 cents on Monday.