High Court upholds NZCC decision declining merger

MARKET ANNOUNCEMENT


19 December 2017




HIGH COURT UPHOLDS NZCC DECISION
DECLINING FAIRFAX NZ MERGER


AUCKLAND, 19 December 2017: NZME Limited (NZX:NZM) (“NZME”) has been advised the
High Court has upheld the New Zealand Commerce Commission’s (“NZCC”) decision not to clear
or authorise the proposed merger of NZME and Fairfax Media Limited’s (ASX:FXJ) Fairfax New
Zealand Limited (“Fairfax”).

On 3 May 2017, the NZCC announced that after almost a 12 month process, it had declined to
clear or authorise the merger of NZME and Fairfax. The appeal by NZME and Fairfax, heard in
the High Court in October 2017, has been unsuccessful.

NZME CEO, Michael Boggs, said he was disappointed in the decision as NZME was of the view
that the merger was in the best interests of both shareholders and the industry as a whole as it
would have improved the efficiency of news and entertainment content generation and distribution
for New Zealand audiences. NZME remains committed to its strategic and operational priorities,
which include:

 Growing audience reach by enhancing content and targeting;
 Retaining Print revenue by further innovating the proposition and leveraging sales;
 Returning Radio to growth by capitalising on improved ratings and sales transformation;
 Growing new revenue streams through the digital classifieds verticals;
 Managing costs and capital effectively through operational enhancements; and
 Continuing to develop people and talent.

“While the Fairfax merger offered us benefits, we have not been resting on our laurels in the last
18 months as we pursued the transaction.

”We will continue to examine shareholder value enhancing strategic initiatives leveraging our
strong brands and audience reach, while enhancing the competitiveness of content generation
and distribution.

“NZME has great people, brands, audiences and customers and a sound strategy to grow
shareholder value. We remain very much of the view that the New Zealand media sector is an
exciting place to operate and, while there are headwinds in some areas, there are real
opportunities in others. NZME is well positioned to take advantage of those opportunities,” said
Mr Boggs.

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NZME will take the time to review the full judgement when released in the coming days, including
the option to appeal the decision.

A copy of the media release advising of the outcome of the appeal is attached. The full judgment
will be subject to a brief embargo pending determination of confidentiality issues.


– ENDS –



For further information:

Paddy Walker
Investor Relations Manager
NZME
T: +6421 486 003
Email: Paddy.Walker@nzme.co.nz





About NZME
NZME is a leading New Zealand media and entertainment business that reaches more than 3.3 million kiwis*.
Whether reading, listening, watching, our audience gets the content they want - where and when they want it.
NZME offers advertisers a unique opportunity to access its growing audience via a fully integrated multi-platform
presence. NZME is listed on the NZX Main Board (code NZM) with a foreign exempt listing on the ASX (code
NZM).
www.nzme.co.nz

*Source: Nielsen CMI, fused database: September 2017 (based on population 10 years +). Based on unduplicated
weekly reach of NZME newspapers, radio stations, and monthly domestic unique audience of NZME’s digital channels.

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THE HIGH COURT OF NEW ZEALAND
TE KŌTI MATUA O AOTEAROA


19 December 2017

MEDIA RELEASE – FOR IMMEDIATE PUBLICATION
NZME Ltd v Commerce Commission [2017] NZHC 3206


Press summary

This summary is provided to assist in the understanding of the Court’s judgment. It does not
comprise part of the reasons for that judgment. The full judgment with reasons is the only
authoritative document. The full text of the judgment and reasons can be found at
www.courtsofnz.govt.nz.
NB. The full judgment of Justice Robert Dobson and lay member Professor Martin Richardson
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was
provided to counsel and the parties on 18 December 2017 on an embargoed basis to enable them to
comment on the extent of references in the judgment to information that was before the Commission
on a confidential basis. To address the parties’ concerns at a partially informed market the Court has
this morning issued publicly a results judgment. The full version of the judgment, redacted for any
commercial sensitivities, will be made available on the Courts of New Zealand website as soon as
possible.
__________________________________________________________________________________
Finding

The High Court has dismissed an appeal brought by NZME Ltd, Fairfax Ltd and Fairfax New Zealand
Ltd (the appellants) against the Commerce Commission’s May 2017 decision refusing their proposed
merger.

In May 2016 the appellants, two of New Zealand’s largest competing media companies, sought approval
from the Commerce Commission to merge their operations. Their combined portfolio includes the

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Sections 77 and 78 of the Commerce Act 1986 provide for lay members to be appointed to the New Zealand High Court
for Commerce Act matters. They ensure that expert evidence on complex competition issues is properly understood,
tested and assessed by the High Court. Their appointment to particular cases is at the discretion of the court. Martin
Richardson is a Professor of Economics at Australian National University and has been a lay member of the New Zealand
High Court since 2001.

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country’s leading online news sites, (STUFF and nzherald), the three largest metropolitan daily
newspapers, The New Zealand Herald, The Dominion Post and The Press, the three Sunday newspapers,
radio stations and a large number of community newspapers.
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Under the Commerce Act 1986 (The Act) there were two avenues via which the Commission could have
approved the merger application. The first, s 66, provides for the Commission to grant clearance for a
merger if it is satisfied a merger “would not have, or would not be likely to have, the effect of
substantially lessening competition in a market”.

Failing that, under s 67, the Commission is empowered to grant authorisation for a merger if is
persuaded that, despite the risk of decreased market competition, the merger would nonetheless result in
such a benefit to the public that it should be permitted.

After failing to gain Commerce Commission approval, NZME and Fairfax exercised their general right of
appeal to the High Court under s 91 of the Act, arguing, inter alia, that the Commission’s market
definition and competition analysis was flawed. If unsuccessful on that appeal ground, the appellants
argued that the Commission’s assessment of the benefits and detriments of the merger was wrong in
sufficient respects that the Court should grant an authorisation.

With respect to the latter, the appellants’ primary ground of challenge was that the Commission was
acting outside its jurisdiction by taking into account the loss of media plurality when weighing the public
benefits and detriments of the proposed merger under s 67.

The Court was required to conduct the appeal by way of re-hearing, forming its own view on the merits of
the case.

The Court’s key findings

• Appeal against the Commission’s refusal to give clearance under s 66 of the Act

The High Court has declined this appeal after reaching the same conclusion as the Commerce
Commission in respect of four of the six markets subject to the competition analysis, namely: the reader
markets for online national news and for Sunday newspapers; and in both the reader and advertisers
markets for community newspapers in 10 North Island areas where the appellants’ existing community
newspapers compete.

The Court did not uphold the Commission’s view that the proposed merger would have resulted in the
likelihood of substantially lessened competition in the advertising market for Sunday newspapers, and it
also dismissed the prospect of one of the appellants introducing a pay wall for their online publication,
post a merger.

• Appeal against the Commission’s refusal to authorise the merger under s 67 of the Act


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The proposed transaction would involve NZME acquiring all of the shares in Fairfax. In exchange NZME would pay
NZ$55 million in cash and would issue shares equal to a 41 per cent shareholding in NZME to an Australian subsidiary of
Fairfax Media Ltd. The Commission treated the appellants as each other’s strongest competitor in most of their businesses’
principal spheres of activity.

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The High Court has also declined this ground of appeal. It has upheld the jurisdiction of the Commission
to consider detriments beyond economic or financial detriments in the relevant markets and, in particular,
to take into account the material detriment arising from loss of media plurality.

On the issue of media plurality the Court stated:

On all the evidence before the Commission, we consider that it is appropriate to attribute
material importance to maintaining media plurality. It can claim status as a fundamental value
in a modern democratic society. We cannot be certain that a material loss of plurality will occur
because of the factors we review that would hopefully assist in maintaining it. However the risk
is clearly a meaningful one and, if it occurred, it would have major ramifications for the quality
of New Zealand democracy. In our analysis on the clearance application appeal we have
recognised material barriers to entry in the market for production of New Zealand news. We
agree with the Commission that a substantial loss of media plurality would be virtually
irreplaceable.

The Court found the Commission was also entitled to place significant weight on the prospect of reduced
quality of the products produced by the merged entity.


The Court’s decision on other aspects of the likely detriments differ in some respects from the views of
the Commission, but overall come to the same conclusion that the weighing of benefits against detriments
does not produce an outcome of sufficient benefits to the public to warrant the grant of an authorisation.

The appellants also challenged a number of inadequacies in the process adopted by the Commission in its
investigation and production of its determination. The Court has dismissed those criticisms.

The Court has indicated that the Commission is entitled to costs.






Contact: Cate Honoré Brett - Chief Advisor Judicial Development and Communications

cell phone or 021 557 874 email cate.brett@courts.govt.nz