Australia | Oct 11 2006
By Greg Peel
The government has bowed to at least some of the wishes of National Party senators in its attempt to pass the proposed media reform bill through parliament. The specific changes are as follows:
•In addition to the “minimum voices” rule (must be 5 media providers in metro markets and 4 in regional) the government has proffered a 2/3 rule which permits common ownership of only two of print, radio and TV in all markets.
•Regional media will be required to provide 4.5 hours of local content and 12.5 minutes of local news per day.
•The access arrangement for Channel B (out-of-home, ie mobile etc, digital services) will include the submission of an access undertaking to the ACCC. This is to stop the big FTA networks buying up the spectrum and simply sitting on it.
The government did not accede to the National’s request to broaden the legal powers of the Australian Communications and Media Authority (ACMA) and the ACCC. Nevertheless, analysts agree that the amendments provided are enough to see the bill through parliament. This will likely occur within the next two weeks, and it will likely take force in the first calendar quarter of 2007.
Analysts also agree that the available M&A “deal set” may reduce given the 2/3 restrictions and the cost of providing local regional content for radio operators.
SB Citigroup notes, however, that the 2/3 rule in metro markets opens the way for a “poison pill defence”. Says Citi: “Any two incumbents now have the option of maintaining independence by engineering a stock-based merger without paying control premiums.”
Another point that is agreed upon is that the 2/3 rule gives additional weight to the concept of “first mover advantage”. Therefore get ready for all hell to break loose on Day One of the new legislation.
In regards to foreign ownership, Macquarie notes the 2/3 rule will nevertheless open up the number of acquisition targets. Says Macquarie: “Because a new foreign player does not reduce the number of media in any given market, virtually any media company could be a target”, and that could even include the broadcast networks and West Australian Newspapers (WAN).
Both Citi and Macquarie agree that the most likely takeover targets are John Fairfax (FXJ), for its respected news service and building online business, and Austereo (AEO) given its natural fit to a TV group.
Citi rates these two companies a 75% chance of takeover, as well as Southern Cross Broadcasting (SBC). The analysts rate Prime Television (PRT) and the Ten Network (TEN) at 50%, West Australian Newspapers at 25%, the Seven Network (SEV), Austar (AUN), APN News & Media (APN), Rural Press (RUP) and Seek (SEK) at 10%, and Publishing & Broadcasting (PBL) at 0%.
As to what sort of money will be splurged on any takeover attempt is anyone’s guess. On the one hand, takeover talk has been going on for so long that the media sector in general, and some struggling broadcasters in particular, are well- to over-priced already. At these multiples they have moved ahead of global peers. However, the great global media consolidation race is on, as is evident in recent deals such as Google throwing US$1.65bn at a couple of guys who once had a simple idea and called it YouTube.
The lingering possibility of an M&A rush has meant that many media stocks are rated by analysts at better levels than they otherwise might be. Ten is the obvious example, with analysts expecting a very poor full-year result next week, but maintaining Hold ratings anyway. Macquarie lifted Ten from Underperform to Neutral this morning. Merrill Lynch also noted that if it wasn’t for media reform, Ten would be at Sell instead of Hold.