Media consolidation continues as Australia's QMS, MediaWorks eye merger

Thursday 29th November 2018

ASX-listed outdoor advertising firm QMS Media and local free-to-air broadcaster MediaWorks have signed a conditional deal to merge the New Zealand businesses in the latest round of industry consolidation.

The media companies entered into a heads of agreement for a proposed merger of QMS's New Zealand advertising business with MediaWorks' suite of TV and radio stations. The deal is subject to binding terms being finalised and, if it goes ahead, will likely be done in the second quarter of next year.

MediaWorks owner, US investment company Oaktree Capital, would get a controlling stake of the merged entity, with QMS securing a material share of the company. The deal would add outdoor advertising to MediaWorks' existing suite of online, radio and TV ads. MediaWorks chief executive Michael Anderson would head the expanded business.

"With this proposed merger, MediaWorks will be able to further enhance its ability to deliver high quality local content and more effective advertising solutions to our customers," MediaWorks chair Jack Matthews said. "It will represent a significant investment in and commitment to New Zealand."

QMS NZ generated ad revenue of $40.9 million in the June 2018 year, down from $44 million a year earlier, accounts filed to the Companies Office show. Its gross margins were 42.2 percent, compared to 43 percent a year earlier. The New Zealand subsidiary generated a net profit of $4.3 million for QMS.

QMS shares were unchanged at 92.5 Australian cents on the merger news.

MediaWorks is inching closer to profitability, reporting a loss of $5.7 million in calendar 2017 from $14.8 million a year earlier. That was on a 1 percent increase in revenue to $300.2 million, of which radio accounted for $159 million, TV contributed $130 million and digital made $11.6 million.

The deal comes as the media sector goes through a period of consolidation. Dominant publishers NZME and Stuff attempted to merge their businesses but that was rejected by the Commerce Commission because of fears it would diminish the breadth of news coverage and commentary. Meanwhile in Australia, Nine Entertainment and Fairfax Media just completed a merger.

The future of MediaWorks has been raised multiple times with private equity owner Oaktree Capital reported to have sought a buyer several times since seizing control after the broadcaster's 2013 receivership.

After the aborted NZME merger, Stuff was rumoured to be a potential buyer of MediaWorks. The rumour was given particular credibility since Stuff's own future under the merged Fairfax Media-Nine Entertainment umbrella could be short-lived. Nine doesn't see the New Zealand publisher as a core business.

Stuff generated revenue of $301.4 million in the June 2018 year and NZME pulled in $390.7 million, of which $279.1 million was from advertising.

Advertising Standards Authority figures show total New Zealand advertising industry revenue across all media was $2.56 billion in 2017.

(BusinessDesk)

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