STOCKWATCH - Australian media stocks higher ahead relaxation of ownership rules

STOCKWATCH - Australian media stocks higher ahead relaxation of ownership rules

	Published : Fri, 30 Mar 2007 03:29 By : Agencies Print this Story

SYDNEY (XFN-ASIA) - Media shares were sharply higher in morning trading here in anticipation of a wave of merger and acquisition activity following the relaxation of media ownership rules on Wednesday next week, dealers said.

They said potential targets such as newspaper publishers Fairfax Media Ltd, West Australian Newspapers Ltd and radio broadcaster Austereo Group Ltd, led the advances.

At 12.00 pm, here, Fairfax was up 0.23 aud or 4.85 pct at 4.97, West Australian was up 0.95 aud or 6.48 pct at 15.60 and Austereo was up 0.08 aud or 4.26 pct at 2.08.

Potential acquirers were also higher including Publishing & Broadcasting Ltd (PBL), which was up 0.77 aud or 4.05 pct at 19.80 and Seven Network which was up 0.27 aud or 2.41 pct at 11.48.

The S&P/ASX 200 was up 31.4 points or 0.53 pct at 5,992.2.

PBL and Seven late last year each formed joint ventures with private equity partners, boosting their cash balance by billions of dollars in anticipation of buying more media assets including newspapers and online businesses.

Seven, which formed a 4 bln aud joint venture with US buyout firm Kohlberg Kravis Roberts (KKR), has already built a 14.9 pct stake in West Australian Newspapers.

PBL has teamed up with CVC Asia Pacific and received 4.58 bln aud in the process.

Macquarie Equities, in a note to clients, said its considers Fairfax and Austereo to be the two companies most in the sights of existing domestic media bidders.

The Macquarie Bank unit said Fairfax is a target because of its strong position on quality Australian news and related display advertising revenues as well as its improving suite of online businesses.

Fairfax is the only major media group in Australia without a major shareholder.

It said and Austereo is a natural fit with a TV group as its out-of-home media platform fits well with and the at-home television platform.

'Foreign capital - either in the form of media companies or private equity - is also likely to play heavily in the local markets,' the firm said.

The federal government announced on Thursday night, after the market had closed, that it will implement new media ownership laws on Wednesday, much earlier than had been expected.

The laws, passed in federal parliament last year, will abolish foreign ownership and cross media ownership restrictions, allowing foreign companies to enter the Australian media sector.

The cross-media rules will be amended to allow cross-media transactions to proceed, subject to there remaining a minimum number of commercial media groups in the relevant market.

As well, a 2-out-of-3 test for ownership of media types in all markets will be introduced.

One company will be able to control a maximum of two major media types across TV, radio and print in any one market.

Goldman Sachs JBWere said, in a research note, the reform of the media laws does not mean 'open season' on the media sector as a number of restrictions will still apply including the need for foreign investors to win government approval under foreign investment policy guidelines.

The firm said the potential impact on some Australian media stocks could be immediate, though for others the opportunities could eventuate in years to come.

It said Rupert Murdoch's News Corp, now regarded a foreign company, now has the opportunity to add television stations to its stable of Australian media assets, which largely comprise newspapers.

Goldman Sachs also noted that CVC Asia Pacific will have the freedom to convert its convertible note holding into a 50 pct equity interest in PBL Media.

It said this clears the way for PBL or PBL Media to acquire or be acquired by newspaper and/or radio operators in its existing markets.

Likewise, Seven Network has moved to crystallize its transaction with KKR.

Goldman Sachs said the new rules clears the way for Seven to increase its stake in Western Australian newspapers.

(1 usd = 1.24 aud)

bruce.hextall@xfn.com