Ovato EGM approves retail distribution sale

Ovato shareholders have voted overwhelmingly to support the proposed sale of the retail distribution business to Are Media, and on a new $2.5m short-term loan from Are.

Are Media is the biggest magazine publisher in both Australia and New Zealand, and a major Ovato shareholder. The retail distribution business was formerly known as Gordon & Gotch, it distributes some 2700 magazines in Australia, and 1800 in New Zealand.

The EGM was held online, and chaired by Ovato chairman Michael Hannan. It saw 99.75 per cent of shareholders support the motion to sell Retail Distribution, and to take the new loan..

The Distribution business will now be sold to Are Media in two tranches, with Are paying $10m for the Australian business, and taking on $22.5m of the debt. Are will also pay $5m for the New Zealand business, and will take on $4.5m of debt. The Australia deal is expected to go through on 31 July, with the New Zealand sale targeted for 30 August or soon afterwards. The separation is to account for differing timelines for regulatory approval in the two countries.

The number of magazines distributed by the business in Australia and New Zealand has shrunk by a third over the last four years – from 226 million in 2018 to150 million last year, with the last two years both seeing 15 per cent declines.

Some 40 per cent of revenue in the business comes from Are Media titles. Overall revenue has diminished from $72m in 2018 to an estimated $60m this year. EBIT though has increased by 50 per cent over the same period, from $4.3m to $7m.

The deal, and the $9m sale of Ovato’s marketing services businesses into a new Hannan entity, leaves Ovato fully-focused on print.

For Are Media it will create a vertically integrated business: it owns its publishing business, it owns 16.38 per cent of Ovato, while its parent company Mercury Capital owns most of heatset printer Webstar in New Zealand, and it will own the retail distribution business in both countries, giving it ownership of publish, print, and distribute in both countries.

The new $2.5m interest-free loan from Are Media Holdco to Ovato is on top of the existing $2.3m loan from the same entity. It will be used to make priority payments to employees, to enhance the working capital, to repay debt, and to assist in restructuring.

The loan will be repayable when the deal with Are Media for the Retail Distribution business goes through, or 10 days after if it doesn’t, or six months after the date of the loan.