Southern Cross Media board not keen to sacrifice LiSTNR podcast holdings for complex ARN takeover

Southern Cross Media board not keen to sacrifice LiSTNR podcast holdings for complex ARN takeover

Sacrificing full ownership of Australia's largest and fastest-growing podcast sales network LiSTNR while retaining a deteriorating regional TV network is not on the runsheet for takeover target Southern Cross Media (ASX: SCA), which has formally rebuffed a revised acquisition bid from KIIS FM owner ARN Media (ASX: A1N).

Today's announcement that Triple M owner Southern Cross would not be engaging with ARN on its revised proposal comes as little surprise, given the board's initial frustrated reaction this week when it was revealed that ARN's consortium co-host Anchorage Capital Partners had pulled the plug on the $250 million deal after seven months of talks.

The new offer would see Southern Cross split in two, pulling the company's metro radio network and digital audio assets into the buyer's fold in exchange for 0.87 ARN shares for every SCA share held, while palming off the regional TV and predominantly regional radio stations Anchorage would have acquired into a new entity tentatively known as "New SCA".

ARN also indicated its willingness to work on alternative proposals whereby New SCA would sell its radio and regional TV assets, or either of the two, to a third party.

The suitor claims the total value of its offer would be $1.20 per SCA share, representing a 15 per cent premium to the consortium's withdrawn offer, although the target's board disagrees and claims the proposal would not generate the incremental earnings or value implied.

"The alternative proposal provides downside for SCA shareholders, even if the execution challenges could be overcome," says SCA chair Heith Mackay-Cruise.

"SCA is Australia’s largest commercial radio and fastest growing digital audio business. Under the alternative proposal, SCA shareholders would be left with a minority interest in an expanded ARN business and full ownership of sub-scale commercial radio assets and declining regional television assets, with limited exposure to the fastest growing media sector of digital audio, and with no cash in return.

"Over seven months of engagement, the consortium was unable to deliver its original proposal in an executable form. The SCA board does not believe transferring that complexity, value and execution risk to SCA shareholders is in their best interests."

Anchorage found that a further deteriorating outlook for regional TV, as well as the existing long-term contractual obligation of SCA for outsourced TV broadcast transmission, did not support its investment thesis.

However, Southern Cross notes that "neither reverse due diligence nor negotiation of the key commercial terms were substantially complete" with the consortium, which had not responded to the first draft of key transaction documentation provided a month ago.

The Southern Cross board is also bullish on many aspects of the company, including a highly networked and integrated audio platform with LiSTNR which has 1.9 million signed-up users and reaches seven million Australians each month.

The digital audio category, led by LiSTNR, delivered gross revenue growth of 56 per cent year-on-year in the four months to the end of April. The platform delivered positive EBITDA for the first time in April and is on track to be EBITDA profitable in the current quarter.

From its radio network of 10 metro radio stations and 78 regional radio stations, advertising revenues were down 2 per cent over the same period but the metro network saw its market share improve given the comparable decline of 4 per cent in the metro radio market overall.

The media group asserts that May and June total group advertising bookings are pacing slightly ahead of the prior corresponding period.

Southern Cross reports that transaction costs associated with the consortium's proposal are expected to be between $4 million and $5 million and will be recognised as a non-recurring item in its FY24 results.

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