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Share gain likely if NZME merger approved

NZ Newswire logoNZ Newswire 1/05/2017 Jonathan Underhill

NZME shares are likely to rally if the Commerce Commission approves its merger with Fairfax Media's New Zealand unit this week.

But if the deal is shot down the stock may not fall as much, says Sydney-based Forager Funds Management, which owns 9.1 per cent of the newspaper and radio group.

The antitrust regulator will announce on Wednesday whether it will allow a merger between the country's two dominant newspaper publishers, having indicated in its draft decision last November that it wouldn't allow it.

It said at the time that such a transaction would "result in an unprecedented level of media concentration for a well-established liberal democracy" with the potential loss of multiple media voices.

Since then both NZME and Fairfax have worked hard to convince the commission otherwise.

They have argued, among other things, that they have ended up as minnows in their own advertising markets because of the inroads of global giants Google and Facebook, which between them now control the lion's share of New Zealand's digital advertising market.

NZME shares rose 3.5 per cent to 90 cents on Monday. It listed at $1 last June and since then has ranged between 99c and 49c on the NZX.

Daniel Mueller, a senior analyst at Forager, says the fund manager picked up its shares at below current levels when "there was not much in the price for the merger being given the green light".

"If the merger does go ahead there's a lot more upside than if it does not," he said. "It is an asymmetric payoff."

The NZME business was spun off from APN News & Media as a pure-play New Zealand media company, with assets including the flagship New Zealand Herald newspaper, a portfolio of radio stations including Newstalk ZB and the GrabOne daily deals site.

Because the two companies are already sharing printing and distribution, the majority of cost savings would probably come from cutting sales and editorial staff.

Fairfax Media chief executive Greg Hywood said at a Commerce Commission conference in December that unless the merger was allowed, it would become "endgame" for the company's New Zealand assets.

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