Get smarter than your boss in 5 minutes with today's business news.
🍻 Seven is buying regional broadcaster Prime
🤯 David Jones has broken its 3-year profit drought
⚡️ Zendesk and Momentive may be joining forces...but shareholders ain't happy
Happy Tuesday Flux fam! 🎉
Here's everything you need to know today - in under 3 minutes.
🍻 Seven is buying regional broadcaster Prime
🤯 David Jones has broken its 3-year profit drought
⚡️ Zendesk and Momentive may be joining forces...but shareholders ain't happy
A shocker of a report has been released by Industry Super Australia showing the total super debt of Aussie businesses is $29 billion. And get this, $5 billion of that was accrued in the 2018-2019 financial year alone. Get claiming Flux fam.
Background: Seven West Media is the company behind one of Australia's largest TV broadcasters, Channel 7. And Prime Media Group own Prime7, a regional broadcaster.
What happened: There's a bitta history here. In 1999, Prime became an 'affiliate' of Seven Network - it started broadcasting some of Channel Seven's major events like the Olympics and AFL Grand Finals as well as shows like Big Brother and Home and Away.
What else: Before 2017, they weren't allowed to merge because of the 'reach rule'. But in 2019, Seven tried to buy Prime but shareholders of Prime blocked the deal. Now, it looks like the pair have come to a new agreement for Seven to buy Prime for $132 million.
💡The 'reach rule' meant that any one person or media company was not able to reach more than 60% of the population. In 1992, this was increased to 75%. It was meant to help Aussies experience some diversity on their screens, and not be limited to one "voice".
💡The effect of this rule was that networks were broken into metro (Seven, Nine and Ten) and regional (Prime, WIN) networks. In 2017, the Liberal government scrapped the rule.
💡The upside is that regional broadcasters now have access to more resources. But the downside is that Australia’s media landscape is already pretty concentrated. And now, the combined Prime and Seven will reach more than 90% of the population each month.
Background: David Jones is the Aussie department store best know for being a lil up market. And it's actually the oldest continuously-operating department store in the world that operates under its original name (stick that in your book of fun facts).
What happened: DJs was bought by a South African company called Woolworths Holdings (not to be confused by our Woolies) in 2014. And things have been going south for a while.
What else: Now, new accounts show that DJs recorded a net profit of $83 million in the 2021 financial year - thanks to more than $70 million in JobKeeper and the sale of a few of its commercial properties.
💡Woolworths bought DJs for around $2.2 billion...and around $1.5 billion of that was considered 'goodwill' - aka, the amount that the David Jones brand and intellectual property is worth.
💡Each year, a company has to test whether that 'goodwill' is actually the same...or less than it was the previous year. If it ain't proving to be useful, the goodwill is considered impaired, and it gets written off.
💡In 2018, Woolworths performed a little accounting move called an impairment charge. In other words, they realised DJ's goodwill was worth $712 million less than what they bought it for. Thankfully, things look like they're coming up for DJs now.
Background: Zendesk is a tech company that creates customer service tools for business (i.e. when you want to complain to an online chatbot...it's very possible you're using a Zendesk tool). The company is now worth more than $16 billion.
What happened: Momentive owns SurveyMonkey - the online questionnaire platform that helps businesses gather feedback from customers. Zendesk is set to buy Momentive in a deal valued at around US$4.13 billion.
What else: Zendesk says the deal will help the company expand its consumer analytics biz...but shareholders of both companies just weren't keen. Zendesk shares plummeted around 16%, and Momentive shares fell 7.3% on the news. Talk about reading the room.
💡Merger and acquisition deals can be derailed by investor sentiment.
💡When share prices fall after an announcement like this, it means investors don't value the company's shares as much as they did prior to the announcement. And sometimes, it can cause businesses to not go ahead with the deal... just to keep shareholders happy.
💡Just last month, this happened with PayPal and Pinterest. Investors reacted poorly to the news...so PayPal backed off from the deal. In this case, it looks like the deal is going ahead.
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