Strong opposition from the competition regulator, the ACCC has forced two of the country’s biggest outdoor advertising groups, APN Outdoor and Ooh media to call off their $1.6 billion marriage.
The news saw the shares in both groups go nowhere on Friday – APN’s rose 1.6%, Ooh’s eased 0.4%.
In their joint statement to the ASX on Friday Ooh Media and APN Outdoor said: “On 4 May 2017, the Australian Consumer & Competition Commission (ACCC) released a Statement of Issues outlining its preliminary view that the proposed merger would likely result in a substantial lessening of competition in the supply of out-of-home advertising services,” the pair said in their statement.
“APO and OML disagree with the ACCC’s views. Both parties maintain that the commercial reality that out-of-home advertising competes extensively and directly with other media channels and as such a narrow market definition is inappropriate. The advertising market is increasingly dominated by on-line digital advertising services and a merger of the two businesses would enhance, rather than restrict, the development of the out-of-home advertising services in Australia.
“However, after detailed consideration, the parties’ view is that the nature and extent of the ACCC’s indicative intervention now represents an unacceptable risk to a successful merger. Furthermore, it is the parties’ view that offering the material concessions to the ACCC which are likely to be required ultimately allow the proposed merger to proceed would adversely compromise the overall merits of the transaction.”
Both companies say the Commission should have given their merger the greenlight because outdoor media is part of the broader advertising market and not just a narrow slice based on what the industry now describes itself as the out of home market.
They did not play up the real story which was that the merged company would have in fact dominated the fastest growing part of the traditional media market in Australia.
Out of home ads has been growing at double digit rate for much of the past couple of years, while print and TV ads have been falling as mobile (Facebook and Google) grab everyone’s lunches.
In fact 2016 was the 7th consecutive year of growth. Industry revenue is now far more than the struggling Ten network drags in each year, a clear sign of its strength and growth.
So while the overall ad market is growing slowly up by between 3% and 4% last year, out of home blitzed it, leading observers to believe that rather than a part of a rather lacklustre wider market, out of home advertising is the only legacy media advertising form whose growth rates have come anywhere close to that seen by mobile ad revenues for the likes of Facebook. It maybe a long way behind, but it is not contracting as print (newspapers and magazines) and TV are.
Out of Home advertising is now highly digitised with billboards in nearly every major location programmable, with ads broadcast from a central location. It is no longer a case of the company sending out a (expensive) truck and crew to remove an existing paper based ad and paste up a new one.
The ACCC said in its statement earlier this month that:
Further, the ACCC is concerned the merger may damage the interests of site owners, who rely on competition between APN Outdoor and oOh!media to obtain the maximum rent for their sites,” Mr Sims said.
“Industry participants have also raised concerns that the combined APN Outdoor/oOh!media will be able to squeeze competitors out of the market, by bundling billboards, where it has a dominant position, with other forms of out-of-home advertising,” Mr Sims said.
And that’s the real reason for the decision to abandon the deal. What Friday’s statement from the two companies failed to allude to is that there was significant opposition to the merger from the owners of any of those billboard sites and from smaller competitors.
The idea of the merger horrified them and the two companies clearly failed to make a strong enough case to counter those fears, or to offer significant concessions to ease those fears. The merger idea was sunk by that opposition more than anything.
