Oops, there’s $800 million or so off the value of the proposed Nine Entertainment takeover of Fairfax Media after downbeat market updates from both companies on Friday (especially Nine) ahead of the release of documentation for the deal.
The updates showed weaker than expected revenue and outlook. Part of the reason for the sharp falls on Friday was no doubt due to the febrile mood on the stock market last week but the detail showed the Australian media sector remains under pressure and so does the value of the Nine-Fairfax deal.
Investors actually overreacted to the Fairfax comment – the 5% fall in revenue so far this financial year was the same figure given with the August full-year profit statement and outlook. It was the Nine update that was the real concern. Nine’s trading update noted that the metropolitan free-to-air advertising market had been “slightly softer than expected” but the network’s share had been ahead.
Overall, Nine’s metropolitan advertising revenue was stable compared to 2018 while digital revenues increased 10 percent. The expected 2019 earnings (before interest, tax, depreciation and amortisation) was kept in the previously stated range of $280 million to $300 million.
Nine had talked confidently about the recovery in TV advertising saying in its 2018-19 outlook in August: “For the September quarter, Nine’s Metro TV revenues are currently trading around 1% ahead of same time last year, while core Digital advertising revenues are around 15% ahead. Across FY19, the Metro FTA market is expected to show growth of around 1%. Nine’s stronger ratings performance since the start of 2017 is expected to continue into CY19. With the absence of key events on other Networks, Nine is expecting to grow revenue share from FY18.”
That no longer seems to be the case and its why investors have heavily sold off Nine Entertainment Co and Fairfax Media shares on Friday. The updates were released ahead of the Fairfax takeover documentation released at 6pm on Friday (meaning its own papers did not have a chance to report on it over the weekend).
The concerns saw Seven West Media shares shed more than 9%. That saw the price of the Kerry Stokes dominated company down more than 16% last week. Southern Cross shares lost more than 8%, News Corp shares fell 3.3% (and are down more than 14% in Australian dollars and over 20% in US dollars, something we don’t see widely mentioned in Australian media.
Nine shares fell 13.7% and Fairfax 13.5% with Fairfax’s property offshoot Domain also down 12.5% on Friday. Over the week Fairfax shares lost more than 19% and Nine over 18%. The slide in the Fairfax and Nine share prices saw the value of the proposed merger tank hundreds of millions of dollars to $3.1 billion compared with the $4 billion value attributed to the deal’s value when the takeover emerged in July.
The shares will no doubt rebound today, but the falls on Friday tell us the Fairfax shareholders will take the share and cash offer and run – and sell off the Nine shares because of the uncertain outlook.
