Nine to press ahead with merger deal

Nine Network chief David Gyngell and his investment bank adviser UBS are believed to be working on a new plan for a $4 billion merger with regional operator Southern Cross Broadcasting.

Nine Network chief David Gyngell and his investment bank adviser UBS are believed to be working on a new plan for a $4 billion merger with regional operator Southern Cross Broadcasting.

The plan will not breach the 75 per cent audience-reach rule that is now certain to remain in place.

Under the plan the two companies intend to sell several of Southern Cross' regional licences to remain within the present ownership law.

Industry sources said the preference was to keep a presence in regional Queensland, Victoria and southern NSW, but the merged entity could sell one licence in northern NSW where Nine and Southern Cross run signals.

Tasmania, the Northern Territory, probably regional South Australia and potentially one other regional market would also be on the chopping block.

If the regional licences could not be sold, these areas might find themselves unable to televise one of the three major networks. Together Nine and Southern Cross cover 87 per cent of the Australian audience.

Any such merger deal would incense Lachlan Murdoch's Network Ten and Kerry Stokes' Seven Network - both of which argued to the government this week against freeing up audience-reach rules.

Ten would be hardest hit because it currently uses Southern Cross as its regional affiliate. It would be left scrambling to find a new partner - and the only one available would be WIN, which has traditionally been Nine's partner in regional NSW. WIN also owns the Nine stations in Adelaide and Perth.

The question of who would buy the divested regional licences is not easy to answer. The Seven regional affiliate, Prime Media, could find such a deal interesting if the price was right.

Ten, which is cash-strapped and suffering from waning profits and ratings, is probably not in the buying mood. Seven might be interested.

Alternatively, Nine and Southern Cross could package up the licences and attempt to market them to a fresh television entrant or even to a number of local businesses in their respective regional areas.

Another way for Nine to increase its reach would be simply to buy the southern NSW and regional Queensland licences from Southern Cross, giving it ownership or coverage in all the major metro and regional areas other than Victoria.

But sources suggest the full merger is the preferred option because it would allow Nine to effect a back-door listing, which in turn would facilitate a sell-down by its major hedge fund shareholders.

Nine has been working on the merger with Southern Cross for months in response to notice from the government that the 75 per cent maximum audience-reach rules would be removed.

But Communications Minister Stephen Conroy recently included the reach limits as part of a broader package of six pieces of legislation - most of which were roundly criticised by the media industry.

At this stage the decision on reach rules has been delayed until June, after which there are only two more sitting weeks in Parliament before the election.

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