APN considers demerging NZME following cancelled IPO

Monday 18th April 2016

APN News & Media could spin off its NZME New Zealand media assets after abandoning an initial public offering for the division in February, although investors say such a proposal may struggle to find favour with shareholders.

The Australian newspaper, owned by APN shareholder News Corp, reported that media group was expected to pursue an in-specie distribution of NZME shares to shareholders for NZME and would make an announcement at its annual general meeting on May 11. Shareholders would hold stock in APN and the separately-listed NZME under a demerger, the report said.

A spokeswoman for APN told BusinessDesk that the company was still considering its strategy for NZME.

“As we communicated at APN’s 2015 full-year results in February, we are actively considering a number of options for NZME and will update shareholders at our AGM in May," she said.

In February, the company canned an IPO for NZME, saying "the advertising market environment is not currently conducive to an IPO and APN will not pursue this approach at this time."

In its 2015 results, APN reported a loss of A$10.2 million, including a A$48.3 million charge against the mastheads of its Australian regional newspapers, from a profit of A$11.5 million a year earlier, and outlined plans to sell its portfolio of 12 daily and more than 60 non-daily Australian regional newspapers to let it focus on its digital growth strategy. News Corp has been reported to be a possible buyer of the Australian regional papers.

NZME, which publishes the New Zealand Herald newspaper and operates The Radio Network, posted a 3 percent decline in revenue to $433 million in calendar 2015. Advertising from its publishing division fell 4 percent while circulation revenue declined 5 percent.

Matthew Goodson, managing director at Salt Funds Management, said existing shareholders might not want a stake in NZME.

"A lot of existing holders, who presumably are based in Australia, I don't think would have very much interest in holding onto a very small cap name which is predominately New Zealand in nature," Goodson said.

Others said APN's debt could make a demerger more complex.

"APN has so much debt on the balance sheet that they can't afford to de-merge and give it out to shareholders like a dividend - they effectively have to get shareholders to pay for it," said an industry adviser who declined to be named. "It's a source of income for the main APN group, and if they lose it by demerging they have to find a way to pay down debt. That's what had driven them last time to effectively say they would IPO it, so a demerger without some kind of meaningful capital raising and very meaningful reallocation of APN's corporate debt to NZME is going to be hard."

The resignation of NZME's chief executive Jane Hastings also made a demerger appear less likely, that person said.

"She was willing to be a public company CEO, the fact that she moved on indicates it's probably not going to happen - the new CEO is happy to be a long-term employee of a New Zealand subsidiary of an Australian media company," the source said," they said.

BusinessDesk.co.nz

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