Money talks in the Fairfax-Macquarie radio merger

The merger of Fairfax and Macquarie's radio networks has compelling commercial logic, and ought to generate considerable cost and revenue synergies.

In the end money and pragmatism talked louder than emotion, with Fairfax Media and Macquarie Radio’s John Singleton able to set aside years of mistrust and antipathy to agree to a merger of their radio networks.

The merger of Fairfax Radio Network and Macquarie Radio Network to create a national talk radio network has been one of those on again, off again transactions over the years, compelling in strategic and commercial terms but consistently derailed by an ability of the two parties to do a deal.

The penultimate attempt to bring the two networks together through a sale of Fairfax Radio to Macquarie earlier this year ended with finger-pointing and abuse, with Fairfax accusing Singleton of being unable to finance the deal and Singleton lashing back by calling Fairfax chairman Roger Corbett a ‘’precocious, pretentious prick’’ and Fairfax chief executive Greg Hywood and "third-rater" and an "idiot". comments he later said he regretted. Singleton is, of course, a rather colourful character.

He and his partner Mark Carnegie had previously held a small shareholding in Fairfax and had entered a consultation agreement with major Fairfax shareholder Gina Rinehart to agitate for change within the media group, so it perhaps wasn’t surprising there was an emotional and distrustful element to the relationship between the two companies. That shareholding was sold earlier this year.

The combination of the two radio networks has, however, always had compelling commercial logic, bringing together Macquarie’s 2GB and 2UE stations in Sydney with Fairfax’s 3AW in Melbourne, 4BC in Brisbane and 6PR in Perth. The merged entity will also own the secondary 'Magic' music network.

In all there will be seven stations within the network, although it is the powerhouse combination of 2GB and 3AW and the on-air (and very expensive) talent within the two stables that really underpins the logic of the merger.

It is the ability to offer national advertisers access to a national ratings-leading talk network that is the driver of the deal, which ought also to generate significant cost and revenue synergies from rationalisation of the administration and news rooms of the two networks.

The merger is to be executed by backing Fairfax’s radio assets into the listed Macquarie Radio, with Fairfax emerging with a 54.5 per cent stake in the vehicle and receiving an $18 million equalisation payment in cash.

As part of the restructuring of its radio interests Fairfax will also sell its Perth station, 96FM, to APN News and Media for $78m, so it will extract about $96m from the deals.

Fairfax, whose traditional newspaper core has been under acute and destabilising pressure from the impact of digital media and advertising models, has been investing in new digital businesses. With strong speculation that it is also negotiating to buy out its partners in the Metro media Publishing joint venture for about $75m, the cash released from the radio deals could come in handy.

Both Fairfax Radio Network and Macquarie Radio have been under some financial pressures, with Fairfax’s network experiencing a 6 per cent decline in revenue and 26.5 per cent fall in earnings before interest, tax, depreciation and amortisation last financial year and Macquarie a 27 per cent slump in EBITDA in a market which actually showed modest revenue growth.

Fairfax has said that revenue slipped further in the first few months of this financial year but had recently shows some improvement.

The merger ought to help lower the expanded network’s cost base, boost its revenues and also position it strongly in the event that there is some relaxation of media ownership rules that might enable it to be brought next to one of the commercial television networks. There has also been speculation that Fairfax itself might merge with a network, possibly Nine, if the cross-media ownership rules are abolished.

While Fairfax will have a clear majority interest in the merger entity the nature of Macquarie Radio’s governance structure hints at some continuing uneasiness in the relationships, which isn’t surprising given the nature of the history of the relationships.

Macquarie’s executive chairman and CEO, Russell Tate, will remain in that role "for an interim 12-month period" while Fairfax Radio’s managing director, Adam Lang, will be chief operating officer. The board will have five directors, with Tate and another Macquarie nominee balanced by two Fairfax nominees, with one other director independent of both.

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