APN may dump outdoor ad business | Stuff.co.nz

JAMES CHESSELL, ANNE HYLAND AND SARAH THOMPSON

APN News & Media, owner of the NZ Herald, is considering a major restructure that would allow the embattled trans-Tasman company to sell out of its outdoor advertising assets in return for full control of its radio division.

The company's radio business, which includes Newstalk ZB, ZM and Hauraki, is jointly owned with US company Clear Channel International, itself heavily burdened with debt.

Sources close to the company confirmed the asset swap was one option being considered by the APN board and new chief executive Michael Miller, the former News Limited executive who joined the newspaper, outdoor, radio and digital group in early May.

APN is in a difficult financial position after the company's two largest shareholders, Ireland's Independent News & Media and fund manager Allan Gray, rejected attempts in February by previous CEO Brett Chenoweth and chairman Peter Hunt to raise fresh equity.

The attempted capital raising, which cost Chenoweth and Hunt their jobs, would have diluted existing shareholders. But the decision not to go ahead puts more pressure on APN to pay down A$465 million (NZ$552m) in net debt, which represents almost three times forecast operating earnings.

"APN is over-geared, print headwinds remain, management flux is an unwelcome distraction, and the INM stake remains an overhang, in our view," UBS analyst Richard Eary noted in early May.

Under the preliminary proposal, APN would sell out of its outdoor business, a joint venture with Quadrant Private Equity, and its Adshell joint venture with Clear Channel.

The outdoor and Adshell businesses would then be combined in a new joint venture controlled by Quadrant and Clear Channel.

Sources close to APN stressed that there was no guarantee a formal proposal would be produced due to tax issues and the requirement of Clear Channel's banks to sign off on any deal.

They also noted APN was considering other deals that could strengthen its balance sheet. It is believed there were informal discussions about selling the radio business in late 2012 with Kerry Stokes' Seven West Media.

It is understood the asset swap was proposed months before Miller accepted the CEO job at APN.

While revenues at APN's publishing business are declining - broadly in line with other newspaper groups, including News Ltd and Fairfax Media - total outdoor was a strong performer with consolidated earnings before interest, tax, depreciations and amortisation of A$69m in 2012.

In New Zealand, APN Outdoor reported net profit of $2.5m on revenue of $26.9m in the year to December 2011, the latest specific figures available.

A sum of the parts analysis by UBS shows APN's outdoor division, including Adshell and Hong Kong Outdoor, would have an enterprise value (debt plus equity) of A$263 million.

The broker gives the company's Australian and New Zealand radio operations an enterprise valuation of A$262 million - although market sources argue the gap is larger depending on how any potential deal is structured.

Those pushing the deal argue the funds released by the advertising deal would then be used by APN to pay down its own debt and buy Clear Channel out of the radio joint venture.

APN's Radio Network operation in New Zealand reported a net profit of $12.5m on revenue of $123.8m for the year to December 2011.

Analysts argue APN needs to consider assets sales to improve its gearing if its printing operations continue to decline. Australian printing ebitda declined 30 per cent to A$39 million in 2012 while New Zealand printing ebitda was down 24 per cent (in local currency) to A$48 million as advertisers and readers defected to digital platforms.

"The continuation of declining print advertising and circulation revenues presents risk to this gearing forecast," Credit Suisse analyst Samantha Carleton noted in February. "In the absence of stabilisation in earnings, APN may need to sell assets such as outdoor or radio, and may have to accept a lower [earnings] multiple."

Clear Channel Communications has been restructuring a heavy debt load as it tries to overcome a hump of several billion dollars maturing in 2016. In May ratings agency Moodys confirmed the group's credit rating at Caa2 but said it needed to make more progress restructuring its debt.

"Even if Clear Channel is able to refinance its 2016 maturities, the company will remain vulnerable to a slowdown in the economy given the heightened sensitivity that its radio and outdoor businesses have to economic conditions," said Moodys.

- additional reporting BusinessDay NZ?

- AFR

Source: http://www.stuff.co.nz/business/industries/8833365/APN-may-dump-outdoor-ad-business

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