Why oOh!Media Ltd & APN Outdoor Group Ltd cancelled merger plans

In a statement to the market this morning, oOh!Media Ltd (ASX: OML) and APN Outdoor Group Ltd (ASX: APO) announced the proposed merger between the two companies would no longer proceed.

oOh!Media and APN Outdoor Group first announced the merger in December last year as part of a plan to create a leading and diversified out-of-home and online media business in both Australia and New Zealand. As part of the arrangement, oOh!Media’s shareholders were to receive shares in APN Outdoor while the merger was expected to be implemented by April 2017.

However, the arrangement between the pair has officially been scrapped with the competition watchdog taking issue with the market dominance that would be enjoyed by the combined entity. Indeed, on 4 May, the Australian Competition & Consumer Commission said:

“Many industry participants have competition concerns in relation to the merger. It will combine the two largest providers of out-of-home advertising in Australia, creating a market leader with over 50 per cent of all out-of-home advertising, and an even higher share in some segments, such as roadside billboards.”

What’s more it noted that the merged firm would be the only provider with a presence in all categories of out-of-home advertising, including bus shelters and train stations, on trains, taxis and buses as well as at shopping malls and supermarkets, to name a few.

The ACCC also took issue with how the reduction in competition could lead to an increase in prices for advertisers and/or a lower level of service, whilst also impacting site owners who rely on competition between the big providers of advertising.

Although APN Outdoor and oOh!Media both expressed their disagreement with the ACCC’s stance, they believe the watchdog’s intervention now represents an unacceptable risk with which to proceed as planned.

The APN Outdoor share price rose just over 1% to $5 shortly after trading began, although it is sitting around 9% lower since the ACCC’s announcement on 4 May. Meanwhile, the oOh!Media share price declined 1.1% today with rival QMS Media Ltd (ASX: QMS) lifting 2.3%.

Foolish Takeaway

There is a lot to like about oOh!Media and APN Outdoor. Indeed, the pair’s share prices have both fallen sharply in the past 12 months which could be an opportunity for investors to do some more research, but they do need to be careful. If the economy were to take a hit, advertising spend would likely fall away sharply, leaving no small dent in their earnings performances. As such, the more risk-averse investors may want to steer clear.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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