NZME shares have sunk 24 per cent after the Commerce Commission's early view that a merger with Fairfax New Zealand would concentrate too much power under one umbrella, irrespective of the financial gains.
The shares fell to 50 cents, where they ended the day - half the nominal $1 price when NZME was carved out of APN News & Media earlier this year.
The closing price on Tuesday valued the company at $98 million after the regulator's draft determination came out against the proposed tie-up with rival Fairfax NZ.
"It's not very liquid - if someone wants to desperately get out they'll get whacked," said Matt Goodson, managing director at Salt Funds Management.
"If the merger was to get up, it would make a material difference to Fairfax NZ and NZME for a period of time before revenues and profits get competed away from new media.
"Even with the merger, every analyst in the market would have revenues and profit being competed away over time. It's just a question over the glide-path."
The commission's opposition to the NZME/Fairfax tie-up comes a week after it questioned the market dominance of a proposed merger between Vodafone New Zealand and Sky TV, another sector in a state of upheaval.
Mr Goodson didn't see the two preliminary decisions as signalling a change in the regulator's stance on mergers and acquisitions, given it waved through Z Energy's purchase of the rival Caltex chain.
But it was interesting that it came down "against two pieces of M&A in sectors with rapid change and facing significant issues".
On the NZME/Fairfax merger, Mr Goodson expects it will come down to points on law around whether the regulator's qualitative assessments on issues such as the breadth and quality of journalism were properly considered, and could ultimately be decided by a judge.
The commission accepted that the merger was a net positive with the estimated savings by cutting duplicated roles at the two companies offsetting quantifiable detriments such as price increases and wealth transfer to foreign shareholders.
However, it said "the level of media concentration brought about by the proposed merger would not be in the public interest".
Fairfax and NZME said they were of the view that the regulator "failed to properly take into account the diversity of opinions that will continue post-transaction in an increasingly converged digital world" and will put forward their case in the next round of submissions.
Shares of Fairfax New Zealand's Australian parent, Fairfax Media Group, rose 1.6 per cent to 81.75 Australian cents on the ASX.