Southern Cross Media frustrated as Anchorage pulls out of $250m takeover bid with ARN Media

Southern Cross Media frustrated as Anchorage pulls out of $250m takeover bid with ARN Media

Photo: Triple M, via Facebook

Deteriorating conditions for the regional television market has scared off private equity group Anchorage Capital Partners which has withdrawn from its $250 million joint takeover proposal with ARN Media Limited (ASX: A1N) for Southern Cross Media Group (ASX: SXL).

While Southern Cross Media is frustrated by the last-minute ditching of the deal following seven months of negotiations, a merger of the KIIS FM and Triple M radio networks could still be on the cards as ARN Media has announced it is going it alone with a new offer.

Southern Cross Media says it was informed on Saturday of Anchorage’s decision to pull out of the ARN Media consortium which had valued Southern Cross at up to $1.04 per share.

The consortium’s deal was already fraught with “significant structural, technical, and other separation complexities” that Southern Cross says provided “execution risk” that at the end of last week had yet to be resolved.

However, ARN Media’s new solo proposal appears to have left the Southern Cross board less than impressed by delivering a complexity that is “materially greater”.

Under the original proposal, the merger would have created a metro radio network of 10 radio stations in Sydney, Melbourne, Brisbane, Adelaide and Perth, anchored by ARN Media’s KIIS stations and Southern Cross’s Triple M stations.

ARN owns 104 radio stations and DAB digital stations nationally, while Southern Cross operates a total of 99 stations.

Southern Cross also owns Network 10 TV channels in regional Queensland, southern NSW and Victoria, as well as Channel Seven in Tasmania and Darwin.

However, under ARN Media’s new indicative proposal the company would still acquire the same radio assets and assume full ownership of the combined digital audio assets of the two broadcasters.

But the remaining assets will be spun off into a new listed entity that will own a national network of 44 radio stations, comprised of 5 HIT and 3 Gold-branded metro stations and 36 regional radio stations.

Southern Cross says that under this new proposal, shareholders would be “left holding an interest in two competing media businesses, one of which would have a market capitalisation of $100 million, and as such potentially be sub-scale and less liquid compared to their existing investment in SCA (Southern Cross Media)”.

Southern Cross chairman Heith Mackay-Cruise came out fighting in the company’s ASX announcement today in response to Anchorage Capital pulling out of the deal over the weekend.

“Over the past seven months, SCA’s management team and advisers have worked diligently and collaboratively with the consortium to evaluate the consortium’s proposal and to enable the consortium to substantially complete its due diligence,” says Mackay-Cruise.

“This has required considerable cost and management effort by SCA. It is frustrating that the consortium has now withdrawn its proposal in circumstances where any potential material concerns should have been identified much earlier in the process.”

Mackay-Cruise says management has supported the due diligence process “without losing focus on daily business activities”.

“Broadcast advertising markets continue to be challenging, but SCA has grown its share of metro radio and digital audio markets during this year,” he says.

“In addition, our LiSTNR digital audio ecosystem delivered positive EBITDA for the first time in April and is on target to do so for the June quarter.”

Anchorage Capital Partners has bailed out of the consortium following a “continued decline in the trading performance of regional TV” since the joint-venture partners originally launched the takeover of Southern Cross Media in October last year.

Anchorage also notes that Southern Cross’s existing long-term contractual obligation for outsourced TV broadcast transmission doesn’t support the private equity group’s “regional TV investment thesis”.

But ARN Media is talking up its alternative proposal which is expected to deliver total value of $1.20 per Southern Cross share – up from the $1.04 upgraded proposal by the Anchorage consortium.

ARN Media, which today reported that advertising revenue for the year to date until the end of April was tracking 1 per cent ahead of the same time last year, says it is seeking to work collaboratively with Southern Cross Media to progress its alternative proposal.

“The requirement to withdraw the consortium proposal should not deflect from the significant achievements ARN has delivered this year in a challenging market,” says ARN Media’s chairman Hamish McLennan.

“We grew total revenue to the end of April, have accelerated our digital audio revenues, regional markets continue to perform strongly, and we are on track to deliver the permanent cost-out reduction target we set ourselves for 2024.

“I firmly believe ARN is the most well-run audio business in Australia, and we are in a position of strength to progress the ARN indicative proposal for the benefit of both ARN and SCA shareholders.”

McLennan says the proposal would “deliver a business of the scale necessary to compete against global platforms”.

“Market restructuring has been talked about for a long time, but the fact remains that today’s regulatory environment is not reflective of the market in which Australian media operates and urgently needs government action,” he says.

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