Two of Australia's most popular media companies, APN Outdoor Group Ltd (ASX: APN) and oOh!Media Ltd (ASX: OML) announced to the ASX this morning that they intend to merge, creating a $1.5 billion advertising conglomerate.
The takeover will be effected via a scheme of arrangement, where oOh!Media shareholders receive 0.83 shares of APN Outdoor for every share held. Effectively valuing oOh!Media at $4.48 per share, slightly above yesterday's close of $4.35.
Here's what you need to know:
- Subject to shareholder and regulatory approval
- Expected to be implemented in April 2017 if all goes ahead
- Expected to deliver $20 million in synergies within two years, and a ~14% increase in Earnings Per Share for shareholders of both companies, excluding acquisition and integration costs
- Net debt post-merger is expected to be 1.2x the forecast pro-forma 2016 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $171 million
- Merger will increase diversification for both businesses
- Significant changes to executive team
Wayne Castle, APN Outdoor's current Chief Financial Officer (CFO), will become the merged group's CFO. Brendon Cook, Chief Executive Officer (CEO) of oOh!Media, will become the new CEO of the merged group. Doug Flynn, APN's Chairman, will chair the merged company. Although both teams are experienced and highly capable, the combination of them in this manner does result in the potential for disagreements or differences in working style.
While I'm not suggesting this is guaranteed to happen, it is well within the realms of possibility, and we've seen it once already at Vocus Communications Limited (ASX: VOC). That's in the future, however.
Right now investors need to be asking 'does this merger make sense?'
Both boards unanimously recommend it, and indeed the companies appear to be an attractive fit. An all-scrip (giving shares only to oOh shareholders) merger preserves cash and avoids the messy and expensive bidding process that would have occurred should one company try to take over the other. The forecast synergies of $20 million aren't huge, but they're not insignificant either, given that EBITDA for the merged group is forecast at $171 million in 2016.
Both companies appear fairly similar valued, compared to one another, and the trading updates released by each this morning confirms that both are performing strongly. Shareholders will want to read the final documents in full detail before making a decision. I also recommend checking out the credentials of the executives that have been tapped to lead the merged company, as oOh!Media shareholders may not be familiar with the APN executives and vice versa.
Today's announcement looks like a fair outcome for shareholders of both companies.
