The shares of Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ) will be on watch on Thursday after the two media companies announced plans to merge. The two shares are expected to commence trading today at 11am.
According to today's announcement, the companies have entered into a scheme implementation agreement under which they will merge with the aim of establishing Nine as one of Australia's leading independent media companies.
The combined business will be led by Nine's current chief executive officer, Hugh Marks, and Nine will hold 51.1% of the combined entity.
The proposed transaction will, subject to approvals, be implemented by Nine acquiring all Fairfax shares under a scheme of arrangement.
Under the proposed transaction, Fairfax shareholders will receive a consideration comprising 0.3627 Nine shares for each Fairfax share held and $0.025 cash consideration per Fairfax share.
Combined, based on Nine's last close price, this values Fairfax shares at approximately 93.9 cents each. Which is a premium of almost 22% on the last close price of Fairfax shares.
Why are they merging?
Nine's chairman Peter Costello believes a merger will create a strong business and open the door to new opportunities.
He stated that: "Both Nine and Fairfax have played an important role in shaping the Australian media landscape over many years. The combination of our businesses and our people best positions us to deliver new opportunities and innovations for our shareholders, staff and all Australians in the years ahead."
Fairfax chairman Nick Falloon was similarly optimistic on the merger. Saying that: "The Fairfax Board has carefully considered the Proposed Transaction and believes it represents compelling value for Fairfax shareholders. The structure of the Proposed Transaction provides an exciting opportunity for our shareholders to maintain their exposure to Fairfax's growing businesses whilst also participating in the combination benefits with Nine."
In addition to creating growth opportunities, the merger is expected to deliver annualised pro-forma cost savings of at least $50 million which will be fully implemented over the first two years.
Though, it is worth noting that even after cost savings the transaction is expected to be earnings per share neutral for Nine shareholders.
So what's in it for Nine shareholders?
Although it is expected to be earnings per share neutral, management believes the merger has the potential to create significant value.
It stated that the merger "unlocks the potential for significant value creation by combining the content, brands, audience reach and data across the respective businesses, including majority owned group companies Domain and Macquarie Media. After completing the Proposed Transaction, Nine will review the scope and breadth of the combined business, to align with its strategic objectives and its digital future."
When Nine's shares commence trade today their performance will give an indication whether shareholders are confident that this will be the case.
Elsewhere in the industry, the merger has led to a rise in the Seven West Media Ltd (ASX: SWM) share price. The Southern Cross Media Group Ltd (ASX: SXL) is flat at the time of writing.
