Why APN News and Media Limited and Fairfax Media Limited NZ are set to merge

APN News and Media Limited (ASX: APN) shares have entered a trading halt pending a demerger of its New Zealand business (NZME), a capital raising, and merger talks with Fairfax Media Limited’s (ASX: FXJ) New Zealand business.


APN shares entered a trading halt this morning after the group announced it would demerge its New Zealand business, NZME. NZME will include some of New Zealand’s “most recognisable publishing, radio and digital brands,” the company said. Each APN shareholder will get one share of NZME for every one share of APN they currently hold.

Meanwhile, APN will retain its key radio and outdoor advertising businesses in Australia and Hong Kong.

Shareholders will need to vote on the proposal.

Capital Raising

The company will also raise $180 million through a fully underwritten 1 for 3 accelerated renounceable entitlement offer (meaning you can buy 1 new share for every 3 you currently hold).

The funds raised will be used to repay a portion of APN’s corporate debt and, if the demerger proceeds, will help facilitate the establishment of appropriate capital structures for APN and NZME.

The new shares will be issued prior to the record date for determining eligibility to vote on the demerger.

Fairfax NZ and NZME merger?

In a separate note to the ASX this morning, Fairfax said it is in exclusive discussions with APN to explore a merger between NZME and Fairfax New Zealand.

“If completed, the combined company will be a leading New Zealand media business, offering depth of news, sport and entertainment coverage across a diverse mix of channels including print, digital and radio,” Fairfax’s ASX media release stated.

“This is an important opportunity for all of our shareholders to be part of the future of content and journalism in New Zealand,” Fairfax CEO, Greg Hywood, said. “The merger would enhance the position the businesses are in to continue to deliver high quality, local content to audiences now and in the future.”

A transaction remains subject to agreement between the two companies’ boards and regulatory approvals. However, the companies said they intend to work towards completion of a deal by the end of 2016.

Foolish takeaway

You are reading this article from a company which is not a traditional media company and offers only digital news. Unfortunately for traditional players like Fairfax and APN, many of the businesses they run are losing relevance in the modern, technology-driven media world.

While the exact details of any deal between Fairfax and APN are yet to be revealed, it makes perfect sense to divest and combine non-core business units. While this may be more of a geographical divestment, it still appears to make sense from an operational point of view because it gives more leverage to standalone NZ and Australian operations.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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