If the current Federal Government changes the media laws to allow for a new round of deals – such as mergers/takeovers – there’s only one bit of advice to follow – consider the past, rotten record of media takeovers, take the money and invest it in a company that will earning profits and pay dividends for a while to come – such as a bank.
Why this rare advice? Well, the media had been nothing but a huge value-destroying black hole in Australia in the past decade – despite all those takeovers from the latest media law changes in 2006.
And remember in the great media law change by the former ALP Government in 1986. Only those in the target companies who took cash and invested elsewhere, or those shareholders in the buying company, who did likewise, have made money.
Those who stayed invested in the merged companies have lost heavily.
So beware of media ministers bearing gifts – and media companies clamouring for them – they will be downright dangerous to your wealth.
A distinguishing feature of the past five years of activity in the Australian media has been billions of dollars in losses, write downs and impairments of over priced assets bought from 2006 onwards in the wake of the last round of media law changes by the old Howard Government.
In fact a rough count shows that the losses from weak trading, write downs, staff sackings and other measure topped the $11 billion mark in the past five years – hardly the stuff to justify the current enthusiasm for another round of media dealings.
Fairfax (FXJ) has lost close to $3 billion in write downs and asset value downgrades – News Corp (the old News Ltd) has seen a similar amount, if nor more than $US3 billion written off, as well as nasty and rising trading losses. APN‘s losses have topped the half a billion dollars, Southern Cross Media (SXL) has losses over more than $100 million on an unsuccessful US newspaper adventure under its previous owners, Macquarie Media.
That’s as much a reason for Seven West Media’s (SWM) reluctance to support the rest of the industry clamouring for regulatory help (so much for the end of the age of entitlement in Australian media?). Kerry Stokes key media company – created in early 2011 via the merging of Seven network and West Australian newspapers – has made Mr Stokes considerably poorer as the merged company’s share price has collapsed. The Ten Network (TEN) has wasted more than half a billion in new capital in the past three years, including a $285 million loss announced in 2013 for the previous year as asset values were slashed.
Likewise with South Cross Media, whose acquisition of Austereo hasn’t added a cent in value to the share price, or APN, whose struggles here and in NZ (and at home in Ireland) has destabilised the share price. Fairfax Media merged with the Fairfax family controlled Rural Press in 2006-07 – and the price collapsed as the high debt made it increasingly vulnerable to the GFC and the rise of the internet.
At one stage during the last round of media law changes in 2006, Fairfax’s share price topped the $7 mark – last week they were cheering at the group and in its mouthpieces (for example, The Australian Financial Review) when the share price regained the $1 mark for the first time in nearly three years.
The Ten Network has wasted close to $500 million in capital since Lachlan Murdoch, James Packer, Gina Rinehart and Bruce Gordon grabbed control of the boardroom and ejected the last group of executives who knew how to run a TV network. No wonder News Corp wants the ownership rules eased so that Lachie’s very public failure can be absorbed.
The Nine Entertainment Co (NEC) is a recent returnee to the public lists on the ASX – but it spent years of close to the edge financial pressure after private equity group CVC paid billions for the company after James Packer sold out. The losses from these deals and then Nine’s struggles to remain afloat top the $US2.5 billion mark.
Seven West Media losses topped the $280 million mark in 2012-13, as it took the axe to the value of its magazine titles. Bauer, the German media group, wrote down the value of its reported $500 million purchase of ACP from Nine by more than $90 million.
But if media reports yesterday are correct, Seven management and board doesn’t seem much interested in the changes. Perhaps they have learned the lesson of a share price tumbling from more than $7 in 2010 to $2.14 yesterday.
Stockmarket investors have forgotten the damage they did (along with dud company managements) from 2006 onwards. Why else would the shares of News Corp suddenly surge from just over $17 a month ago to $19.68 last Friday? And the rise in Fairfax’s share price is also being driven by this stupid belief in the positive power of mergers in the media – ignoring the value destroying that was the reality.
And why are all these executives so eager to merge and deal (with the exception of Seven, at the moment)? Because they will get the chance to build their income and bonuses through higher share prices for their options and performance shares, and nothing else.
And finally, don’t trust the executives at media companies. Deals will boost their pay and they rarely stay around to undo the mess the mergers make.
None of the CEOs around at the time of the value-destroying deals are with us any more.
The bosses and many boards have gone at Fairfax-Rural Press merger, the News Corp takeover of the Wall Street Journal and the huge losses in Australia (although Rupert Murdoch remains there), the merger of Seven and West Australian Newspapers, or the various CEOs of Nine or Ten. The CEO and advisers and others make their money, get paid to leave, leaving shareholders in the lurch.
The next round of deals will see something similar happen. The acquiring companies and their shareholders will pay too much for assets that will be artificially high in value.
Reality will set in as the same factors that have undermined the media in the past seven years – the internet and all things online, falling ad revenues, rising costs and not enough new revenue and profits to be found to replace that which is being lost. And that will see another round of write downs and impairments.
Despite the ‘recovery’ in media stocks in this country, these negative factors are still eating away at the business plans for these analogue media companies – and won’t go away.
