Southern Cross Media rejects merger with ARN Media but is open to a better offer

Southern Cross Media Group (ASX: SXL) has rejected a proposed merger of its Triple M radio network with ARN Media’s (ASX: A1N) KIIS FM, arguing that the deal undervalues its business.

However, the radio and television network operator has urged the suitor to rethink its offer if it is to have any chance of success.

ARN Media, in partnership with private equity group Anchorage Capital Partners, lobbed the $225 million takeover bid to Southern Cross in October last year with a plan to merge their respective radio and digital assets while cutting their exposure to regional television.

However, Southern Cross – which was rocked earlier this month by revelations that one of its major shareholders was seeking to sack the board over its failure to make a recommendation on the offer – revealed on 1 March that it had been unable to properly assess the bid because the consortium had not forwarded key financial information to complete its assessment.

While Southern Cross says it remains open to explore the potential benefits of the merger for shareholders, the financial performance figures forwarded by ARN Media since 1 March have led Southern Cross to sour its opinion of the proposal.

“Our board acknowledges the strategic merit underlying the consortium’s proposal but considers that the current terms of the proposal undervalue SCA (Southern Cross Media),” says Southern Cross chairman Rob Murray.

Southern Cross Media says that based on the additional material provided by ARN Media, and its own due diligence, ‘it has become apparent that there have been fundamental changes to the economics of the indicative proposal’.

Among the changes cited by Southern Cross Media is an increase in the leverage and a reduction in the earnings base of the merged entity from that originally indicated by the consortium.

“These changes have significantly reduced the value of the indicative proposal to SCA shareholders,” says the company.

ARN Media is proposing to acquire all of Southern Cross Media’s capital for 0.753 shares in the new merged entity for each Southern Cross share and 29.6c cash per share.

However, with a potential shareholder revolt still at play, Southern Cross Media has not completely shot down the offer from ARN Media.

“We are open to considering proposals from the consortium or other parties that would deliver fair value and be in the best interests of all our shareholders,” says Murray.

“In the meantime, we remain focused on continuing to optimise the audio ecosystem we have created across broadcast radio and digital audio.

“This is central to our strategy and our value proposition, and we are committed to converting our audience leading positions into sustainable growth and returns to our shareholders.”

The pressure for a deal went up a notch on the Southern Cross Media board after the company posted a 71 per cent slump in net profit after tax for the first half of FY24, with revenue falling 2.9 per cent to $252.6 million.

Major shareholders were not happy and the company was forced to respond on 1 March to media reports that Spheria Asset Management was planning to call an extraordinary general meeting to remove the board after it failed to make a call on the ARN Media takeover offer which by then had been on the table for four months.

Major shareholders Allan Gray and Ubique Asset Management were also said to be supporting the push to remove the board.

Southern Cross at the time said it remained ‘constructively engaged in evaluating the non-binding indicative proposal’ and that it required the financials from ARN Media to complete its assessment.

“The SCA board respects the rights of shareholders to call an extraordinary general meeting and will fully comply with its legal obligations,” the company said at the time.

“However, given the work completed to date, the SCA board considers that it would not be in the interests of SCA shareholders for such a meeting to be called before finalisation of the SCA board’s consideration of the indicative proposal.

“The board reiterates its commitment to act in the interests of all shareholders and will keep the market informed in line with its continuous disclosure obligation.”