NZME-Fairfax merger details revealed

NZME will pay $55 million in cash and issue shares giving Australia's Fairfax Media a 41 percent stake if a planned merger of New Zealand's dominant publishers is given the go-ahead.

The two media companies signed a merger implementation agreement subject to various approvals that would see NZME add another $90 million to its banking facility so it could buy all the shares in Fairfax New Zealand in a cash and scrip deal, Auckland-based NZME said in a statement.

The final consideration is subject to any adjustments to ensure the merged entity's debt doesn't exceed certain thresholds and could mean Fairfax Australia's balance of cash and shares may change.

NZME's banking facility is expected to rise to $250 million to fund the deal, from its existing $160 million funding line, of which the publisher of the New Zealand Herald newspaper and Radio Network operator had drawn down $112 million as at June 30. The companies have identified a number of areas where a merged entity can avoid double-ups, which NZME said would lead to one-off costs being incurred.

"We are delighted to have progressed merger negotiations to this stage and to be in a position to shortly put this proposition to NZME shareholders," chief executive Michael Boggs said.

"The merger will present opportunities for NZME to significantly enhance our integrated offerings to both our audience and our advertising clients."

High levels of indebtedness put the Australasian media companies in precarious positions over the past decade, forcing them to sell assets and cut the size of their newsrooms in an effort to shore up their balance sheets, and the merger of Fairfax and NZME's assets are seen as a way they can start competing online where the likes of Google and Facebook dominate advertising revenue.

The companies are seeking Commerce Commission authorisation for the deal, a higher threshold to cross than a clearance in that it claims an anti-competitive transaction can drive enough public benefit to outweigh any reduction in competition. The antitrust regulator has delayed its final decision until March next year, saying the deal is complex and it needs more time to assess the impact on both news content and the advertising market.

The New Zealand company's shareholders will vote on the proposal in October or November, with a notice of special meeting likely to be distributed next month, and Overseas Investment Office approval will also be needed to get over the line.

NZME said the two companies reported pro-forma revenue of $766.2 million and earnings before interest, tax, depreciation and amortisation of $135.2 million in the year ended June 30. That compares to revenue of $802.6 million and earnings of $133.7 million in 2015.

The NZME board said it was committed to keeping leverage at or below 1.5 times ebitda and a dividend payout ratio of 60-to-80 percent of underlying net profit.

Fairfax Australia would get two directors of the enlarged company if the deal is approved.

NZME shares last traded at 73 cents on the NZX, valuing the company at $143.1 million. Fairfax's shares closed at 98 Australian cents on the ASX, valuing it at A$2.25 billion.


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