Nine Entertainment Co. Holdings Limited (ASX: NEC)

Agreement between Nine and Fairfax: Nine Entertainment Co. Holdings Limited (ASX: NEC) and Fairfax Media have entered into a Scheme Implementation Agreement to merge. The proposed transaction will be implemented by Nine acquiring all Fairfax shares under a Scheme of Arrangement. As per the agreement, Fairfax shareholders will get scrip consideration of 0.3627 Nine shares for each Fairfax share held and $0.025 cash consideration per Fairfax Share. Nine’s shareholders will hold 51.1 per cent of the combined entity, with the remaining 48.9 per cent to be held by Fairfax shareholders. According to the deal, the combined entity will be headed by Mr. Hugh Marks (Nine’s Chief Executive Officer). The combined entity will also invite three Fairfax Directors to join the Board of the consolidated business, which will be led by Nine Chairman, Mr. Peter Costello and further incorporate two Nine’s directors into the combined business. Through this deal, the combined business will expand its portfolio size through incorporating Nine’s free-to-air television network, digital business portfolio i.e., Domain, Stan, and 9Now, and Fairfax’s media portfolio.

The proposed transaction will be subjected to shareholder and other approvals. Fairfax’s Board will unanimously recommend the offer in the absence of a superior proposal and subject to favourable conclusions from an Independent Expert’s review. It is anticipated that the Proposed Transaction will be complete before the end of CY18. Moreover, NEC is expected that the merger will deliver at least $50 Mn in annualised pro-forma cost synergies realisable over two years. For the year to June 2018, NEC is expecting to report Group EBITDA at the upper end of the previously announced range of $250-260 Mn and declared a second half dividend of $0.05 per share, fully franked. While, FXJ is expecting to report Group operating EBITDA of $272–275 Mn which is in line with market consensus and declared a second half dividend of $0.018 per share (franked at $0.0083 per share). In both cases, these declared dividends will not be affected by the Proposed Transaction.


Extensive Opportunities in Various Domains (Source: Company Reports)

Moreover, Deutsche Bank AG and its related bodies corporate, a substantial holder of the group changed its holding from 9.46% of interest to 10.57% of the voting power. Besides this, UBS Group AG and its related bodies corporate, a substantial holder of the Group changed its substantial holding and now holds 5.27 per cent of the voting power in the Company since 1 August 2018. Meanwhile, the share price has risen 47.53 per cent in the past six months as at August 16, 2018 and trades close to 52-week high level ($2.665). Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $2.430, ahead of FY18 results due on August 23, 2018.
 

Seven West Media Limited

Positive Outlook: Seven West Media Limited’s (ASX: SWM) stock climbed up 8.76 per cent on August 17, 2018 at the back of positive market sentiments. There seems to be a rise in advertising expenditure trailing back towards traditional advertising channels on TV and radio. The group offers a wide range of free-to-air (FTA) television services, newspapers, magazines, and online solutions and delivers various programs on international categories, games, drama, entertainment, news, and public affairs. On the financial front, net margin expanded by 1100 bps to 12.40 per cent in 1HFY18 from the prior corresponding period (PCP). Resultantly, RoE and RoIC substantially increased from 1.0% and 0.6% to 22.0% and 6.9%, respectively in 1HFY18 against 1HFY17. Therefore, the group has reaffirmed the full year 2018 guidance and expects Group EBIT to be between $220 Mn and $240 Mn.The management informed the market that the net debt will be around $650 Mn for FY18 and the group maintains focus to improve balance sheet flexibility. Further, it expects to deliver $40 Mn of cost savings in FY 18, offsetting the AFL uplift and the spectrum charge, that will result in an overall small reduction in group operating costs thereby increasing the bottom-line of the company.


Robust Portfolio (Source: Company Reports)

Meanwhile, the share price has risen 97.96 per cent in the past six months (as at August 16, 2018) and trading towards higher level. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $1.055 ahead of its full-year earning update which is to be released on August 21, 2018.

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