Suddenly Everyone Likes APN, Sort Of

Sydney, Nov 5, 2008 (ABN Newswire) - APN News & Media (APN) shares were again in demand yesterday, finishing up 11 cents in a down market, to $3.09.

That was after jumping to $2.98 Monday from Friday's close of $2.41.

But the shares are hardly being rushed by hedge funds and punters looking for a bit of takeover tension.

It's perhaps a sign of how battered hedge funds are after the pressures of the past month to six weeks, or some scepticism about whether the sale of the dominant 39.1% stake by Tony O'Reilly's Independent News & Media (INM) of Ireland, will happen, and at what price.

But we have seen an outbreak of relative optimism from investment analysts and others chirping about the charms of APN News & Media.

There's much 'informed' talk about how the sale process will be accelerated, with the deal to be finished by around March 2009.

Could there be a suspicion that Tony O'Reilly is a very reluctant seller and will try and use the market interested to get a new loan from somewhere and to avoid selling this very high quality asset? 

Analysts suggested yesterday that the sale will happen, and pointed to the surprise presence of the ANZ bank as one of the sale advisers. They said that suggested the ANZ was the lender to INM that wanted to see a sale ASAP and was riding shotgun over the process.

The news has brought a rush of brokers abandoning their gloomy view of the company because of the slumping outlook for media (especially newspapers where job ads fell by a nasty 35% in the year to October).

The sum total of our knowledge is that the broking community reckons that APN is worth more than the $2.41, but bets are being hedged until they see a trading update on Thursday.

But there's nothing like a bit of corporate activity to help analysts see a bit of 'sunshine' when all they could see was rain. It improves the 'visibility' and eases the 'headwinds' (they are two words favoured by brokers when trying to point out the difficulty of see how the company can improve or keep going at previous rates in coming periods.).

Previously the visibility for APN was poor because of the headwinds of the slowing economy, falling advertising volumes and rates and pressure on margins from costs. 

But it operates principally in regional Australia, which was seen as being a bit more solid than metro areas, but it has 50% of a faltering metro radio network and its newspapers and radio businesses in NZ are smack in the middle of an economy already in recession which seems to be deepening.

The outdoor business, the biggest in the country, was also expected to find it tough because of the current and deepening slump.

The Seven Network in partnership of association with West Australian newspapers was seen as the best bet.  

Merrill Lynch explained:

"Potential buyers for the various parts of APN include Seven (very cashed up) and WAN, who could also be interested as a means of diversifying out of pure WA publishing and has scope to do so given its solid balance sheet. 

"We think Fairfax and Macquarie Media would like certain businesses within APN, but we see limited scope for substantial acquisitions given both balance sheets are relatively stretched. News Corp and Lachlan Murdoch's Illyria are also potential acquirers.

Citigroup said:

"While we view APN's assets as strategically attractive, we also view current credit market conditions/ gearing levels as prohibitive for most domestic names (including FXJ). However, we estimate that SEV and NWS could pay cash for IN&M's stake.

JP Morgan said:

"We believe a number of domestic media groups would have a strategic interest for all or parts of APN's Australasian assets including cashed-up Seven Networks. Fairfax should in theory be an obvious suspect but we believe it comes too early as the group is still digesting the Rural Press merger and Southern Cross acquisition.

"We believe the acquisition of the 39% stake could represent a stepping stone for a strategic investor to gain control of the company and subsequently sell some of APN's businesses (e.g. radio, outdoor) in order to partly fund the transaction.

"International media groups' involvement is not to be ruled out especially if some of APN's businesses had to be disposed of should the ACCC had competition concerns under a domestic combination scenario.


 

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