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On 16 October 2017, the Broadcasting Legislation Amendment (Broadcasting Reform) Bill 2017 (Cth) was passed by Australia’s House of Representatives and granted Royal assent. Following the Royal assent, the Bill was enacted as the Broadcasting Legislation Amendment (Broadcasting Reform) Act 2017 (Cth) (Act). The Act includes a number of substantive amendments to the Broadcasting Services Act 1992 (Cth) (BSA) and is a part of the Australian Federal government’s comprehensive broadcast and content reform package announced on 6 May 2017.
The BSA previously included five key restrictions on media ownership and control:
The Act repealed both the “75 per cent audience reach rule” and the “two-out-of-three cross-media control rule”.
The key rationale behind the repeal of the “75 per cent audience reach rule” was that the rule is redundant as the fact that many metropolitan and regional television licensees have affiliation agreements to share content and online streaming has meant that most Australian viewers receive essentially the same broadcast content.
Similarly, the government’s rationale for the abolition of the “two-out-of-three” rule was that it does little to encourage media diversity in the current digital media environment and does not account for the modern reality that many consumers access content from online sources. The abolition of the “two-out-of-three rule” was the most contentious element of the Government’s proposed media reforms.
The abolition of the “75 per cent audience reach rule” and “two-out-of-three cross-media control rule” will see greater consolidation of the media sector in Australia. However, it is important to note that there continue to be substantive limitations on consolidation of, and investment in, the Australian media sector. Notably, the remaining three current media control and ownership laws, colloquially known as the “five-four media diversity rule”, “one-to-a-market rule” and “two-to-a-market rule” (see above), were not repealed under the Act.
The reform package will present its own challenges for media players as they confront a period of accelerated transactional activity. As well as understanding the new changes and evaluating the opportunities presented by the reform, which amend specific controls regarding media ownership, corporations will have to deal with existing general controls on investments in, and acquisitions of, organisations in the media sector.
Principally, where a media entity is listed on the ASX, acquisitions of its securities are subject to restrictions under Chapter 6 of the Corporations Act 2001 (Cth). These provisions include a prohibition on acquiring a relevant interest in the voting securities of a listed entity where, because of that transaction, a person’s voting power in the entity increases from 20 per cent or below, to more than 20 per cent, or from a starting point that is above 20 per cent and below 90 per cent, except where the acquisition occurs through certain limited exceptions (e.g. takeover bid or a scheme of arrangement).
Under Australia’s foreign investment regime, principally the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulations 2015 (Cth), any acquisition by a foreign person of an interest of 5 per cent or more in an entity or business that wholly or partly carries on an Australian media business is a notifiable action that must obtain foreign investment approval, regardless of the value of the investment.
There are different rules for investments by a foreign government investor, which by the nature of the definition captures a lot of financial sponsors by reason of their LP base. Where a proposal involves a foreign government investor, the Government also considers aspects including the commerciality of the investment. This includes assessing whether the investment is commercial in nature or if the investor may be pursuing broader political or strategic objectives.
Organisations acquiring shares of companies or assets in the media sector will also need to comply with Australia’s competition laws, namely the Competition and Consumer Act 2010 (Cth) (CCA), and may need to seek regulatory clearance from the Australian Competition and Consumer Commission. Under the CCA, a corporation must not directly or indirectly acquire shares in the capital of a body corporate if it would have the effect, or be likely to have the effect, of substantially lessening competition in any market.
The reforms made under the Act are likely to increase competitiveness of, and encourage mergers and acquisitions activity in, Australia’s media sector. However, it only removes two hurdles in a highly complex, regulated legal landscape.
This piece is designed to prompt thoughts of what changes may be required in private M&A documents in order to accommodate and allocate risks relating to COVID-19 and the fallout from this pandemic.
ASIC and ASX have both announced temporary changes to their respective regulatory regimes to facilitate capital raisings for listed entities in response to the economic impact of COVID-19.
Times are changing rapidly with the current flow of Coronavirus measures introduced to support businesses in debt and distress.