Start the week: Will The Cat reanimate Prime's corpse?; Wobbly moments for the bear economy
Could Antony Catalano use the husk of Prime to get onto the ASX?; and with icy winds now blowing, who'd want to be on the ASX anyway?
Welcome to Unmade, written in the UK while you were sleeping on Monday morning.
Happy Beer Can Appreciation Day.
Today’s writing soundtrack: Laid, by James.
With Australia Day this Wednesday, it feels like the silly season is finally coming to an end. This may be the last one week we can write off this side of Easter.
Slowly, things are coming back to life after an earlier than usual finish for Christmas. The radio industry resumed ratings hostilities a week ago, while the TV networks aren’t back to their official ratings year for another fortnight yet. Next week the media and marketing sections of the newspapers will return. Heck, even the ABC’s presenters are coming back from their holidays. It was Patricia Karvelas’ first day on air for RN Breakfast today.
Bad news on the doorstep
When the wind changes for the economy, it’s amazing how quickly it happens. From tales of crypto boomtown and soaring property prices, today’s Australian Financial Review suggests that an icy wind is howling in our direction. In the real world, it will be felt first by the media industry. Marketing spend is always the first tap to be turned off.
AFR readers get a lot of bad news for their four bucks today. The front page leads with ASX investors bracing for “sell off pain”, while on the back page, James Thomson reports a sense that “market confidence is cracking and sentiment has turned very bearish, very quickly”.
The irrational ASX boom - fuelled in part by generous Job Keeper payments along with investors having nothing better to do with their money while interest rates were so low - looks like it won’t stretch into a third year.
There’s a fair bit of doom mongering inside the AFR today. On page three, economists are predicting that official inflation numbers are going to jump tomorrow, pushing the Reserve Bank to start raising interests rates earlier than it wanted to. Soon, those who stretched themselves on their mortgages while credit was cheap will be facing higher repayments, which means less disposable income to spend on the things that marketers like to sell to them.
On the same page, the AFR points out that home owners who have been waiting out the boom in case it goes any further are now piling into the market to get their properties to auction before prices start to fall. Which, ironically, may well cause prices to start to fall.
That may help explain why Domain’s share price is down by 17% for the month to date and REA Group is down by 14%. Once real estate activity slows down so will ads in the sector.
Further into the paper, the ”jitters” of the US tech sector are on the paper’s mind, with the Netflix share price plunging on Friday after subscriber growth slowed, and the sector having had its worst month since the GFC.
Looking towards Europe, columnist Katie Martin kicks off her piece with the words “Not to be alarmist, but…” Which is always alarming.
And that’s before we get to the Bitcoin crash - down 25% so far this month. Karen Maley asks whether that’s “the canary in the coal mine”. As she puts it: “Bearish investors warn that the precipitous decline in the value of bitcoin and other digital currencies is a foretaste of the pain that lies in wait for the prices of other assets, particularly for the formerly high-flying technology stocks”.
That’s a lot of bear talk.
Maley points out that the US Nasdaq, having fallen by 14 per cent since November - well over the 10% technical threshold - is “in correction territory”. Make it a 20% fall, and that’s a bear market.
Further in, the newspaper devotes another double page spread to what looks like the end, for now at least, of the crypto gold rush. That’s just ahead of cartoonist Glen Le Lievre dedicating his space on the op-ed page to an olde time licence for bitcoin losers.
This morning’s edition of The Australian doesn’t contain much cheer either, splashing with “WA border backflip to hurt nation”. The front page piece reckons WA’s decision to stick with hermitude will mean a half billion dollar hit for the travel sector.
Maybe the Covid market bubble has finally burst.
I realise that property values, share prices and crypto may seem somewhat removed from the day-to-day of the media and marketing industry which is Unmade’s main focus.
However, consumer purchasing behaviour is driven by consumer confidence. It’s not just whether consumers can afford to pay their mortgage (although that matters); it’s about how wealthy they feel. Even if they have no intention to move, a fall in a home’s value is a psychological hit for the owner; the performance of the ASX directly impacts people’s super fund performance with similar psychological effect too.
If the winds really have shifted, the pandemic phase of Covid may be waning but it doesn’t mean a return to normal.
Prime Media to rise again?
Speaking of the AFR, the paper’s Street Talk column contains an intriguing tidbit this morning. Even though it is due to stop trading on the ASX tomorrow, Prime Media may not be dead after all.
With Seven having now completed the acquisition of its regional affiliate’s assets, shareholder Antony Catalano may try to reanimate Prime’s corpse.
It would mean that instead of Prime being wound up after distributing the proceeds of the sale to shareholders, the company could become a new vehicle that would take ownership of the media assets owned by Catalano and his business partner Alex Waislitz. That’s their regional newspaper group Australian Community Media and real estate site realestateview.com.au
There are a couple of attractions for Catalano and Waislitz, both of which are to do with financial engineering.
First, as the AFR points out, Prime - or PRT Company as it is now officially known - has more than $90m in carried forward tax losses on its books. In other words, the company would not - in theory - need to pay tax on its next $90m in profit. I say in theory because when majority ownership in a company changes, the tax office would need to be satisfied that it is still the same or a similar business. Catalano and Waislitz currently own just under 23% of PRT Company.
The other attraction is that it would potentially offer a much more straightforward route onto the ASX. Taking over an existing listed company avoids all the hassle of issuing a prospectus going through a formal flotation process.
That’s a pain that Catalano went through once when, against his wishes, Fairfax Media floated Domain when he was the CEO.
The plus side of being listed is that it offers scale, and a mechanism to raise new funds for investment. And with few locally listed media companies, investors who went exposure to media companies might well have the appetite.
In terms of investor sentiment, ACM may still be profitable, but newspapers are also a sunset industry. The company’s greater value on the ASX would have to be derived from persuading investors that it’s not too late for another big classified brand to find scale. Alongside realestateview.com.au comes View. If that can find momentum in regional Australia in other verticals (for instance, cars or jobs), then the story of a new competitor for the likes of Domain, REA Group, Seek, carsales.com.au and the rest becomes quite interesting.
It also seems Catalano’s best hope of achieving billionaire status. At present he’s stuck frustratingly in that middle ground of only being worth a few hundred million. The poorest rich person in Australia, as they’d say on Succession.
It’s worth bearing in mind that any such deal is a way off. Catalano and Waislitz’s holding company WA Chess has only got as far as formally asking PRT Company for discussions. That scuppers the plan for a swift winding up, but no more than that.
As major shareholder WA Chess would be in a position to block a winding up order, but the duo are not guaranteed to automatically get their own way.
Remember Catalano’s history. When he was the biggest shareholder in Fairfax Media, thanks to the sale of his The Weekly Review to the company, he tried to get involved in a private equity takeover which failed. And in the late stages of Fairfax’s merger with Nine, he again tried and failed to get an alternative bid off the ground.
For PRT’s other shareholders, they will need to make a new calculation. Having assumed the company would be wound up with a negligible value, the carried forward tax losses now potentially have a value after all, and they would expect to see some of it.
As far as I know, Seven West Media still owns about 15%. Having watched Catalano and Waislitz wreck the company’s first attempt to take control of Prime back in 2019, I wonder whether proprietor Kerry Stokes and CEO James Warburton have forgiven them now the deal is done. Otherwise they could make it difficult, just for fun.
Regardless, all the shareholders will want to see some of the action. But equally for Catalano and Waislitz, there will be a price beyond which the convenience of a takeover is not worth it after all. A multi-million dollar game of chicken may be about to get under way.
Dr Spin: EDM out of hell
The problem with email marketing is that once the message is loaded up and ready to send, it’s easy to forget the time bomb sitting in the system.
Like the time Expedia sent out a message offering cheap holidays in New Zealand, illustrated with a picture of the spire of Christ Church Cathedral, a few hours after it was destroyed in the 2011 earthquake.
On Friday, it was barbecue company Weber’s turn, sending out its recipe of the week, shortly after the death of singer Meat Loaf. Unfortunately that recipe was for - yes, you’ve guessed it - meatloaf.
Time to let you start your week.
With Australia Day to come, I’m not expecting to send you the usual Wednesday email this week unless something big happens.
Have a great week.