SYDNEY - [AAP] Fairfax Media (ASX: FXJ) shares have jumped to their highest level in seven years on the surprise announcement of a merger with Nine Entertainment (ASX: NEC) that will create a $4 billion media giant.

The move will cut costs for the broadcaster and the publisher, both of whom have faced huge pressure from increasing competition and dwindling advertising revenue.

It creates a single entity with exposure to network TV, streaming and news delivery that Nine and Fairfax claim will reach more than half of Australia through television, online, print and radio.

The Fairfax board will unanimously recommend shareholders vote in favour of the cash-and-scrip deal under which they will receive 0.3627 Nine shares and 2.5 cents for each share.
That values each Fairfax share at 94 cents, a 21.9 per cent premium to Wednesday's closing price of 77 cents.

Following the announcement, Fairfax shares were 9.25 cents, or 12 per cent, higher at 86.25 cents by 1203 AEST - their highest level since May 2011.

Nine shares had dipped 20.5 cents, or eight per cent, to $2.315 - a two-month low.
If the transaction, which also requires regulatory approval, is completed, Nine will emerge with a majority 51.1 per cent of the combined entity.

The new entity will be "Australia's largest integrated media player" and include Nine's free-to-air TV network, Fairfax's masthead newspapers and radio interests, and Fairfax's stake in online property classifieds giant Domain (ASX: DHG).

Netflix rival Stan - an existing joint venture between the two companies - will be wholly owned by the new entity.

Overall, the merger is expected to deliver at least $50 million in annualised cost savings.
Nine chief executive Hugh Marks will lead the new company, while Fairfax directors will join a board helmed by Nine chairman and former Liberal federal treasurer Peter Costello.

"Both Nine and Fairfax have played an important role in shaping the Australian media landscape over many years," Mr Costello said in a statement.

"The combination of our businesses and our people best positions us to deliver new opportunities and innovations for our shareholders, staff and all Australians in the years ahead."

However, it appears some assets could be sold or reassessed following the merger.
"After completing the proposed transaction, Nine will review the scope and breadth of the combined business, to align with its strategic objectives and its digital future," the companies said in their statement.

The competition watchdog will begin consultation on the deal next week, while financial regulator ASIC will also review it.

Pending the approval of Fairfax shareholders, the merger is expected to be completed by the end of 2018.

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