Opinion from former Fairfax Radio Network GM, Graham Mott 
 
The first talk of a merger between Sydney Talk stations, 2UE and 2GB, started in mid-2003.  The merger proposed to combine a significant part of the station operations including, but not limited to:
 
National (Agency) sales
News
Technical; and
Administration
 
The merger was designed to benefit both owners – Southern Cross Broadcasting (SCB) and Macquarie Radio Network (MRN) – with considerable savings in operating expenses and an improved share of National Agency revenue share.
 

​The merger would have resulted in job losses at both 2UE and 2GB. 

It was almost complete when a leaked article appeared on the front page of The Australian on 3 December 2003.  As a result of the leak SCB decided to kill off the planned merger after a company board meeting in which serious concerns were raised about a public backlash.

Tony Bell, then chief executive of 2UE’s parent company, SCB, said that while he felt the plan was financially sound, he decided to withdraw from the deal as a result of the details being prematurely leaked, which prevented him from making a proper briefing to his staff.

The merger would have resulted in job losses at both 2UE and 2GB.  It prompted public outbursts from 2UE broadcasters John Laws and Mike Carlton and 2GB’s Ray Hadley, as well as criticism from the then NSW Premier, Bob Carr.
 
FAIRFAX MEDIA ACQUIRES SOUTHERN CROSS RADIO

In November 2007 Fairfax Media acquired the SCB radio stations – 2UE Sydney, 3AW and Magic 1278 Melbourne, 4BC and 4BH Brisbane as well as 6PR and 96fm Perth.
 
FAIRFAX MEDIA FURTHER CONSIDERS A MERGER WITH MRN AND IN THE END DECIDES TO SELL
Some discussions also took place in 2008 and again in 2010 regarding a merger between Fairfax Radio and MRN. 
 
Then in May 2011 Fairfax announced that it had decided to consider selling its radio assets as a result of interest that had been shown by the market.  MRN stated publicly its strong desire to acquire the stations.
 
Grant Broadcasters acquired the Fairfax Radio Regional Network in October 2011; however the proposed sale of the metropolitan stations didn’t eventuate.
 
THE HISTORY OF 2UE AND 2GB
 
2UE and 2GB have been fierce competitors since their inception.  Both have a history in Top 40 music and big name personalities.  Their formats were a mixture of music and talk; however when talkback commenced in 1968 the Talk component changed dramatically.  Listeners were able to gain immediate access to their favourite station and personalities.  It was from this point that the component of opinion became an integral part of the Talk format appeal.
 
In the late 60’s and through the 70’s all stations were financially successful.  With only six commercial stations in each of the Sydney and Melbourne markets, and even less in the other cap cities, making a dollar wasn’t all that hard.  It’s fair to say that you could make a profit even if you were an ordinary operator.  However, things began to change in the late 70’s.  In Sydney and Melbourne new AM licenses were introduced in 1978 – 2WS Sydney and 3MP Melbourne – and commercial FM broadcasts commenced in 1980.
 
The era of greed in the 80’s gave way to financial control and responsibility by the end of the decade.  This all happened at a time when Australia’s inflation rate was at an all-time high and we went on to endure the “recession we had to have” according Treasurer Paul Keating.  It was in this environment that the Sydney Talk stations were hit hard by the reality that it was very difficult, if not impossible, for the two of them to remain profitable.
 

Alan Jones described himself as “The Bank”

 
The success of commercial Talk in Sydney came down to who had the big name personalities – or more to the point – who had John Laws.  Laws value to the business grew significantly, along with his salary, as he moved between 2GB and 2UE (he was at 2UW for a short time).  Laws showed he could move an audience and advertisers with immediate effect and it didn’t take long for him to be dubbed the King, and the King was the formula for success.
 
As the years rolled by the King’s crown started to slip – cash for comment didn’t help – and a new driver of success, Alan Jones, was making waves.  Jones once described himself during his sensational run of success at 2UE as: The Bank.  He most certainly was and if ever anyone doubted that they quickly learned he was the man who could change the fortunes of a station overnight.  When Jones left 2UE at the end of 2001 and started on 2GB breakfast in early 2002 it impacted the two radio stations instantly.  Jones was the key driver; however he didn’t do it alone.  Ray Hadley performed brilliantly and soon became the No.1 morning radio personality. Unfortunately for Southern Cross and Fairfax it has been a one-sided match over the past eleven years.
 

In the last two years 2UE’s audience has dropped 30%

 
WHY A MERGER
2UE is bleeding the Fairfax Radio Network and the company needs to stop the rot.  In the last two years 2UE’s audience has dropped 30%, which has killed off their chance of growing revenue.  With no recovery in sight for 2UE Fairfax needs an out – they can’t keep operating the way they are.
 
A merger will benefit 2UE and 2GB with significant reductions in operating expenses for both stations.  Added to that will be the opportunity to increase National Agency revenue across the entire network by having key stations 2GB and 3AW in the same sales offering.
 
The downside of a merger is the complexity of establishing and managing it.  There are other options, one of which is for Fairfax to cut its losses and sell 2UE.  It could then form an affiliation with MRN to become part of the Talk sales and news network.  This structure currently exists with Fairfax Radio and their Adelaide affiliate 5AA.
 
This is simple and has no concerns regarding the regulators, the ACCC and ACMA.  It also allows for an easy exit for both parties.  The winner of this scenario would be Fairfax who would rid itself of a significant loss making business and at the same time they would enjoy a much improved sales offering with 2GB and 3AW in the same network.
However, from an MRN point of view this structure doesn’t have much appeal apart from the potential of increased National Agency sales.  With no windfall of a significant reduction in operating expenses MRN’s EBIT growth expectations would be moderate.
 
There’s no doubt that Fairfax hold the upper hand in any scenario.  They have the capacity to borrow if they decided to acquire MRN.  Fairfax could then divest 2CH and reap the benefits of a combined 2GB/2UE operation or they could sell 2UE and retain 2CH.  The retention of 2CH would complete an east coast adult music network with the Fairfax owned Magic 1278 and 4BH.
 
If Fairfax considers itself a long-term operator of radio assets acquiring MRN now is likely to be a more value additive than acquiring MRN’s share of a merger at a future point after synergies and benefits have been realised.
 
MRN’s options are fewer due to their limited borrowing capacity.  For them, the most benefits would come from a merger.
 
In the event that a merger was the favoured option the task of establishing and operating it would be complex.  It would require a clearly defined business plan that would also have to overcome potential issues with bodies such as the ACCC and ACMA.  Depending on just how the merger is structured, one of the stations in Sydney might need to be divested.
 
Another matter that will need to be determined is a clear understanding between Fairfax and MRN as to whether one or both of them will want to exit the venture and when.  In the event that Fairfax considers itself a long-term operator of radio assets acquiring MRN now is likely to be a more value additive than acquiring MRN’s share of a merger at a future point after synergies and benefits have been realised.
 
The issue of the day to day management in Sydney will be very challenging, but nonetheless, an exciting one.

Related report:

What would happen if Macquarie and Fairfax merge?