Investment Matters

What Matters: Media giants "merge", Nufarm doozy and more quarterlies

The biggest news of the week was Nine Entertainment’s takeover of Fairfax (subject to the approval of Fairfax’s shareholders and the ACCC).  Fairfax shareholders will represent 48.9% of the combined ~$3.9 billion entity, and have been offered a 21.9% premium to the share price prior to the announcement.  (One very well could question why!  Fairfax up 8.4% and Nine -10.3% on the day of the announcement, so the sharemarket seems to concur.)

The announcement put the deal up as a merger, but in reality, it is a scheme under which Nine will acquire Fairfax.  Nine’s Chairman and CEO remain.  The Age (Fairfax owned) unsurprisingly perpetuated the merger propaganda “Fairfax, Nine announce plan to merge” (headline as at 9.43am Thursday 26-Jul-18, The Age website).  There is also pertinent commentary about the end of the Fairfax era, as well as issues surrounding journalism quality / independence etc – but these are beyond the scope of What Matters.

To other news: Nufarm (agricultural chemicals and seeds) hit the market with a doozy first up Monday morning.  Dry conditions in Australia were a big driver of the 17.3% downgrade in earnings (vs previous guidance dated 8-May-18).  Impairment charges (not quantified), and excess working capital (inventory) were additional financial slips.  Share price -11.1% on the day.

Wesfarmers provided further information regarding the Coles demerger.   It will be a 1:1 demerger (1 new Coles share for each Wesfarmers share held) scheduled to occur in November, Wesfarmers will retain 15% ownership and leave Coles with a reasonable debt level (not leave it saddled with debt as often occurs in IPOs from private equity), and some members of the Coles Board were announced.

Also in November, Macquarie Group will have a new CEO - the reportedly highly talented Shemara Wikramanayake, who currently heads up the company’s asset division, will succeed Nicolas Moore.

More quarterly reports (ending 30-Jun-18) were released by mining companies this week.  Fortescue Metals (iron ore) and Newcrest Mining (gold) on track.  Sandfire (copper/gold) on track but FY-19 production flat forecast at an increased unit cost.  Iluka Resources (mineral sands) not so good; lower production volumes (but prices are up).

Online retailer Kogan’s share price fell 11.8% with the release of its quarterly trading update.  Strong revenue growth for FY-18 (+40% vs FY-17) masked an apparently declining growth trend towards the end of the financial year (still growing but not as much as expected.  And expectations are everything …).