Shares of Ten Network Holdings Limited (ASX: TEN) have risen a further 1 cent or 4.5% today, adding to yesterday's 7.3% gain. The jump in share price follows speculation of a possible tie-up between the free-to-air broadcaster and Fairfax Media Limited (ASX: FXJ), taking Ten's total gain over the last two days to 12.2%.
A merger could significantly boost the performance of both companies, which have been struggling in recent years as a result of falling advertising revenue. This has largely been caused by the rapid rise of the online advertising market.
While the significance of a meeting held between the management of both companies has thus far been played down, the shares' rally certainly indicates that shareholders are excited by such prospects. Investors could also be optimistic that such a move would save Ten Network from having to raise equity following years of underperformance.
At this stage however, a merger between the two entities has been described as "highly speculative". As it stands, there are strict media ownership laws in place which restrict media companies from reaching more than 75% of the population, as well as from owning a newspaper, TV station and radio station in the same market. In addition, there are a number of powerful shareholders on the board of each company which could pose as another obstacle to a merger.
While a merger seems unlikely at this stage, Ten's position in Australia's free-to-air market continues to lag behind that of Nine Entertainment Co Holdings Ltd (ASX: NEC) and Seven West Media Ltd (ASX: SWM). Warren Buffett's advice that 'turnarounds seldom turn' seems appropriate in this case.
