Nine Entertainment Co. Holdings Limited ($NEC)

Good morning, ladies and gentlemen. I'm your Chair, Peter Tonagh, and I'd like to welcome you to the General Meeting of Nine Entertainment Company. I'd like to start today by acknowledging the traditional owners of country throughout Australia and pay my respects to their elders, past, present and emerging. Today's meeting is being held on the land of the Cammeraygal people of the Eora Nation. This meeting is being held as a hybrid meeting. We've got some shareholders here with us in person, thank you for joining us. And others participating virtually. Shareholders will be able to watch the meeting in real time, submit questions and vote on the resolution online at the meeting today. If we encounter significant technical problems during the meeting, we may adjourn the meeting until 3:00 p.m. to ensure all shareholders have an opportunity to participate. And of course, we'll notify the ASX if that happens. It's now shortly after 9:00 a.m. and I'm advised that this is a properly constituted meeting and as a quorum of at least 2 shareholders for a general meeting is present in person or by proxy, I declare the general meeting open. I propose to take the Notice of Meeting as read. The notice of meeting, independent experts report and a virtual meeting guide were provided to all shareholders in advance of this meeting. They are also available on the company's website and on the ASX announcements platform. Before we start, I'll run through some mechanics for the meeting. For people participating online, at the top of the screen, you'll see the meeting presenter and the presentation slides. At the bottom of the screen, there's 3 boxes. These allow you to get a voting card to ask a question and download documents such as the notice of meeting. If you experience any difficulties using the online platform, a help line number is displayed at the top of the page. For those of you in the room, you should have received a card from the MUFG Market Services staff. All shareholders, proxy holders and authorized corporate representatives in the room who are entitled to vote and ask questions have been issued with yellow voting cards. If there is anyone in the room who is entitled to vote and does not have a yellow voting card, could you please see one of the MUFG Market Services staff at the registration table. Nonvoting shareholders should have a blue card. If you hold a blue card, you may make comments and ask questions. Visitors with red cards and media with green cards are reminded that while you're welcome to attend the meeting, this is a shareholder meeting, and you are not permitted to make comments or ask questions. Online participants can type questions into the online platform. To do this, click, ask a Question and follow the prompts. We encourage participants to submit questions now. The Company Secretary will read out any questions at the appropriate time. We may aggregate questions if we receive multiple questions on the same topic. All voting will be by poll, and I declare the poll open now. So you can lodge your vote at any time during the meeting. If you did not cast your vote prior to the meeting, you may cast a live vote at any time now using the online platform, or for people in the room by completing your voting card and giving it to the MUFG representative, the Returning Officer for the meeting. MUFG will collect voting cards in the room after discussion on the agenda item. Voting on the online platform will close 5 minutes after the close of the meeting. First, let me introduce you to the people who are here with me this morning. They're in slightly different order. So I've got Chris Halios-Lewis, our newest Director, Representative of WIN. Next to Chris is Miyuki Rosen, Independent Non-Executive Director and a Member of the Audit and Risk Committee, the People and Culture Committee and the Nominations Committee. I'll just read off the screen is going to be easier. I've got Mandy Pattinson, Independent Non-Executive Director and Chair of the People and Culture Committee and a Member of the Nominations Committee. We have with us Timothy Longstaff, he is a Non-Executive Director and Chair of the Audit and Risk Committee. I've got Andrew Lancaster, a Non-Independent Non-Executive Director and a Member of the Nominations Committee. Of course, we have with us Matt Stanton, our Chief Executive Officer; and Rachel Launders, our General Counsel and our Company Secretary. So let's move to the formal business. We've called this general meeting to seek your approval for the sale of NBN Enterprises and Television Holdings Darwin to WIN Television Network. These businesses operate free-to-air television stations in Northern New South Wales and Darwin, respectively, with the benefit of program supply agreements with the Nine Network. Those arrangements will continue after completion of the sale to WIN. This ensures that Nine's premium content, including our news and sports programming continues to be broadcast to audiences in Northern New South Wales and Darwin for at least the next 5 years. Because Birketu, an entity associated with Mr. Bruce Gordon is a substantial shareholder in Nine and also the owner of WIN. This transaction is classified as a disposal of a substantial asset under ASX Listing Rule 10.1, therefore, shareholder approval is required to proceed. The Board's independent directors unanimously recommend that you vote in favor of this resolution for several key reasons. This sale aligns closely with Nine's strategy to focus on metropolitan markets and accelerate our digital growth. Moreover, as Nine's affiliate in most of regional Australia, we believe WIN is best placed to operate these businesses going forward. In addition to the $20.5 million of cash proceeds, Nine expects to realize capital losses that will provide a cash benefit to Nine of approximately $100 million, which will be used to reduce our external debt. Our independent expert, Lonergan Edwards & Associates has concluded that the transaction is fair and reasonable to all our shareholders. The ACCC has approved the transaction, so Nine shareholder approval is the last approval required before we can complete the sale in early June. The number of direct and proxy votes received prior to the meeting are shown on the screen now. Where undirected proxies have been given to me as the Chair of the meeting, I will vote in favor of the resolution to the extent permitted. Are there any questions from shareholders in the room holding a yellow or a blue card. David, thank you.

David Kingston, K Capital. Look, I know this sector well, I used to personally own Spencer Gulf telecasters. So I understand the sector. Firstly, some background and then a couple of questions, Peter. At the November AGM, I congratulated Nine on being the best traditional media company in Australia over the past decade. The domain sale was excellent. AFR and Stan have been solid contributors. Since then, the sale of domain at the big price has been accentuated with realestate.com falling considerably in value. So well done to that -- on that. The acquisition of QMS has also happened from private equity at $850 million, which, in my view, is a bit excessive. Headline multiple 8.1x EBITDA, a bit less with claims synergies. When outdoor leaders like [ JCDecaux ] trade below 6x EBITDA. But let's turn to this transaction. NBN operates in Northern New South Wales and Southeast Queensland. It includes the booming Gold Coast and Newcastle areas. The sale is to a substantial shareholder win, which has an economic interest of around 25% and 2 directors on the Nine board. NBN is Nine's strongest performing regional market with a huge share of 46%. NBN contributes to approximately 30% and of Nine's regional sales team costs. The sale price, you mentioned in your address Chair, $20 million, the formal sale, if I understand it correctly, is $14.8 million, plus a potential $7.8 million if the commercial broadcast tax is waived and also Darwin for $500,000. Given the huge deficit to the tax cost base of NBN. Importantly, the sale will also provide a cash benefit to Nine of around $100 million by saving in capital gains tax on the domain transaction. And that's obviously very relevant. In addition, obviously, we will pay 50% of its NBN revenue to Nine for programming, albeit a tiny 10% of the revenue from Darwin. Let's turn to the Lonergan report. Some reports are good. Some are to be frank, reverse engineered. Lonergan puts the value on the stations being sold, $13.4 million to $20 million. Total consideration he assesses at $15.7 million to $15.9 million. So at the midpoint of the range, the consideration is a deficit of $900,000. Let's look briefly and then I'll come to some questions at what Nine is giving up if this transaction proceeds. You're giving up revenue of around $79 million and pretax profit of $42 million albeit that is before adjusting for the revenue received as affiliate fees. But that's a lot of pretax profit and a lot of revenue going. Lonergan just come to some questions soon Chair, but Lonergan has undertaken a DCF and EBITDA multiple of valuation. DCF for 10 years. Surprisingly, Lonergan did not include any terminal value at all after 10 years, 0. He also assumes revenue will decline by 5% per annum, which seems pretty aggressive. When you adjust for affiliate fees, which is substantial, Lonergan has adopted a long-term EBITDA margin of 8.5%, which seems pretty tight. It's also applied a 12.5% to 14% discount rate, which again seems pretty high, and he arrives at a DCF value of $12.5 million to $18.5 million. His second approach, Chair. EBITDA multiple. Lonergan has adopted $6.5 million EBITDA as the maintainable EBITDA. He notes that analysts in the stock market tend to apply 2.5 to 4x for TV. The Seven West merger of equals, no control premium, was done at 3.5x. But Lonergan has adopted, in my opinion, a very low 2 to 3x EBITDA multiple, which when applying to $6.5 million EBITDA, gives $13 million to $19.5 million. That's how Lonergan concluded that the value is somewhere between $13.4 million and $20 million. My questions, Chair, is it fair that Lonergan has applied 0 terminal value for NBN at the end of 10 years? In other words, he's saying it's worthless at the end of 10 years. And is it fair that NBN -- he's assumed NBN revenue will decline by 5% per annum. Maybe we'll do them sequentially. I have a couple of questions.

Sure. So first of all, thank you for your question, and thank you for your support of the team at Nine and the things that we've done in the past. We agree with you, obviously, on the sale of the Nine being a terrific transaction. We maybe disagree with you slightly on QMS. We're very happy with our QMS acquisition, but I know that we're largely aligned. So thank you, and thank you again for the support. In terms of the current transaction that we're looking at, I think a couple of things I'd point out. First of all, I think you need to be careful to compare this transaction with, for example, Seven West Media transaction, there's a fundamental difference. And the fundamental difference is that, first of all, we're talking here about a regional television network. As you know, from your past experience, regional television is a very different operating challenge to Metro television. We have a partner, our partner at WIN, who is operating regional television networks around the country and an expert in dealing with the additional operational complexity that they have over what a Metro TV network has. And so we're very comfortable that they are better to be able to manage this asset than what we are, hence, our view that it makes sense for us to sell that asset. So the logic, I think, is very strong. In terms of the valuation, there's a couple of points. First of all, you do have to recognize there's a significant affiliate fee, as you mentioned. And so we still maintain the benefit of getting revenue from this market, which is very important to us. The difference that you need to take into account when you're comparing with other transactions is that Nine, very probably has 9Now, which is our streaming service. We're seeing significant increases in audiences, I'm sure you've noted in that streaming service. Equally, obviously, Seven has a streaming service. We maintain the ability to get the benefit of that 9Now streaming service across all of the geographies within Australia. And so therefore, we're capturing as the audiences shift across, we're capturing value from 9Now, which can't be counted in the value of the asset that we're shifting across and selling to WIN. That makes a big difference, both in terms of the multiple that you should apply. But secondly, in terms of the terminal value I don't have a view as to whether the independent experts' assumptions are exactly right. That's why we employ an independent expert. What I do have a view on is that I see that the terminal value in any stand-alone free-to-air television asset without the benefits of a streaming service to go with it is going to be much, much lower than it is for an organization where you're migrating audience across to the streaming. I think that's probably the major difference in maybe the view that I have at the value. I won't comment on the Lonergan's view because it's independent, but my view of the value takes account of the fact that WIN is purchasing an asset where they don't have the benefit of the migration of digital audiences.

Look, thanks very much for that elaboration. I appreciate that. But in my view, it's just bizarre that transaction is going to shareholders with an independent expert's report saying that the asset has 0 value in 10 years' time. TV is declining. It's worth a fraction of what it used to be worth. But to say it's worth nothing in 10 years' time, I think, is very bizarre, but anyway.

Again, I won't comment on the Lonergan view because it is an independent view. But I know from my perspective as the Independent Non-Executive Chair of Nine, one of the factors that really drove me in the decision-making around this was the fact that I do think that there is going to be a continued decline in free-to-air as there's a shift across to the streaming service, which we capture. There's also -- within these businesses, there's a lot of employees. And so basically, there's an obligation with those employees no matter what going forward to ensure that they're taken care of. That also has an impact on terminal value when you think about the valuation of the business like this.

Okay. My second question is, while QMS is a very different business. It also has some challenges. Most of your contracts expire in 5 years or so. You've got to renew the contracts. But is it sensible to pay headline 8.1x EBITDA, which reduces maybe into the 6s with synergies, but to sell NBN at 2x to 3x EBITDA.

I think this meeting is about NBN. So I'll continue to focus on NBN. It's our assessment and it's the assessment of the independent expert that it's a reasonable price to be achieved for this transaction. We think it's a fair price. I can tell you that our Managing Director and CEO on the behalf of the organization, negotiated very hard to get the best price that he could. We get, obviously, the benefit of the price. We get the benefit of the continued affiliate fee coming in, and we get the benefit, as you noted earlier, of significant tax losses as well. And so on a stand-alone basis, I think this is a good transaction when you include the fact that we get the benefit of the tax losses, I think it's an exceptional transaction for all shareholders.

So, Matt, what's it like negotiating with the 25% shareholders has got 2 Board seats? Easy?

No, it's not. And it was very -- sorry, it was a very arm's length discussion and conversation around doing this. So it was a process over a period of time to go through that transaction. So yes, we're very, very pleased with where we got to. But as all negotiations you do, they're challenging.

Okay. But my final question, Chair, is bearing in mind the incredibly low multiple that's been applied to the sale. Did you actually look at all at reversing the roles and becoming a buyer, not a seller and a bidding WIN for its operations?

No, we didn't and we didn't because we have a very clear strategy within Nine. That strategy includes a number of things, but it's very much about having the focus of our business in the highly populated metro areas but providing the benefits of the content that we create to all of Australia via partnerships. And that's because of the point I made earlier that managing a regional television business is a very, very different proposition from an operational perspective. If there's partners whether it be WIN or somebody else, but if there are partners who can manage that operational element better than us, we think the natural owner is that partner where we can continue to get the benefit of the affiliate fees and we can continue to get the benefit of national coverage of a streaming service.

Well, your main competitors disagree with that, Peter, because Seven owns a number of regional affiliates and as does Ten. So I'm just surprised in the context of if, WIN decided it potentially was a buyer of NBN, which is a terrific regional network. I'm surprised you didn't actually at least consider buying WIN out.

I think as you said before, Nine is probably the outstanding performer in terms of media companies in Australia. That performance is based on strategic decisions that we've taken. I'm not particularly interested in Seven West Media's approach or Ten's approach. Our approach is, we believe we're better to focus on the metro areas and to have partners who can better manage the regional areas. But as I say, we get to capture the benefit of the affiliate fee and we get to capture the benefit of focusing on streaming on a national basis. We think that's a better outcome for shareholders.

Look, in respect to the decision, but I'm surprised if you didn't at least do a paper on buying WIN out because your competitors think that that's the way they want to go. I respect you have got a different view, but I'm surprised if you didn't look at it. It have been a nice purchase.

Yes. And again, I'd reinforce that we didn't specifically look at it in this instance. We have a strategy, which includes the focus on Metro. We've obviously to arrive at that strategy. We've spent a lot of time considering where we think the value is that we can deliver. And that's the conclusion that we came to. 100% believe it's the right decision. And as I say, I'm not sure that I would look at Ten or Seven as the exemplars of -- that we should blindly follow like sheep. We don't mind being very different to them. And I think so far being different to them has been beneficial to all shareholders. Thank you. Are there any other questions? Rachel, are there questions online?

No online questions today.

Okay. As there are no further questions, we'll move to the vote. The voting procedures. Shareholders in the room will now complete voting in the poll. Shareholders voting online can lodge votes until 5 minutes after the close of the meeting. The proxies and direct votes that have been received for each resolution are shown on the screen. If you have a yellow voting card, please now indicate your vote on the front of your voting cards in relation to each resolution by marking them for, against or abstain box. Once you've done that representatives of MUFG Market Services will now collect your completed voting cards. [Voting]

Okay. Have all the yellow voting cards in the room being collected, a few over here. Okay. Thank you very much. Once I've received the scrutineer's report on the poll, the results will be announced by notice to the ASX. Ladies and gentlemen, that completes the items on the agenda of the extraordinary general meeting. I now declare the meeting closed. For shareholders participating online, you now have 5 more minutes to lodge your votes via the online system. And the results of the poll will be announced to the ASX as soon as they're available. Thank you, shareholders, to Julia, Ben, Kevin, David and Joseph, thank you for joining us in the room today, and thanks, everyone, for your participation online.