Southern Cross Media warms to increased $250m offer from ARN Media

Southern Cross Media Group (ASX: SXL) has warmed to an improved takeover offer from KIIS FM owner ARN Media (ASX: A1N) and private equity group Anchorage Capital Partners with the broadcaster announcing plans to push forward plans to finalise merger negotiations.

The suitors last Friday announced that they were prepared to lift their non-binding indicative proposal to snare Triple M owner Southern Cross Media, which also has regional Network 10 and Channel 7 television operations.

The latest offer values Southern Cross Media at $1.04 per share or $249.5 million – up from the original $225 million valuation - and comes on the heels of Southern Cross formally rejecting the bid on 7 March for undervaluing the company.

ARN Media is now proposing to acquire all of Southern Cross Media’s capital by offering 0.87 shares in the new merged entity for each Southern Cross Media share and 29.6c cash per share. This is up from 0.753 shares in the new entity, while the cash component remains the same.

ARN Media says it has agreed to put forward the higher offer despite Southern Cross Media’s deteriorating earnings performance since it originally announced its proposal late last year.

The broadcaster 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.

ARN Media notes that this result is being offset by a “significant cost-out program that is yet to be independently reviewed by the consortium’s due diligence advisers”.    

Southern Cross Media today has revealed that, in the wake of a higher offer, it will move quickly to finalise the proposal.

“The consortium’s revised proposal will provide a significant increase in the consideration for SCA (Southern Cross Media) shareholders, and the SCA board is willing to re-engage on the basis of the higher value now being put forward,” says Southern Cross chairman Bob Murray.

Southern Cross, which had been facing a shareholder revolt led by Spheria Asset Management for its failure to act on the proposal originally put to the company in October, says the parties will progress transaction documentation as “quickly as possible, with the objective of entering a mutually acceptable scheme implementation deed over the coming weeks”.

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.

The merger will create a metro radio network of 10 radio stations in Sydney, Melbourne, Brisbane, Adelaide and Perth, anchored by the KIIS and Triple M brands.

“The ability for the SCA Board to ultimately support the transaction, including the proposed consideration, will depend on the satisfactory completion of outstanding due diligence, including as to the value of ARN NewCo (the new merged entity),” says Southern Cross media.

“The revised indicative proposal remains subject to several conditions and there is no certainty that a binding transaction will eventuate.”

With a merger now looking more likely, Murray has confirmed that he will retire as director of Southern Cross Media before the company’s 2024 annual general meeting, although he has offered to remain chairman if a merger agreement is not reached by then.

Long-time director Glen Boreham has also announced his intention to retire in the wake of today’s announcement, with no replacement for the nine-year Southern Cross veteran proposed.

"I have enjoyed working with the SCA board and executive team which has been innovative and forward-looking in building and growing the LiSTNR digital audio ecosystem to meet the needs of modern audiences and advertisers,” says Boreham.

Murray, who joined Southern Cross Media on the same day as Boreham, says he can “attest to the significant contribution he has made over nearly 10 years”.

“Our board and executive team have benefited greatly from Glen’s knowledge and insights, his experience in mergers and acquisitions and other corporate transactions, and his global networks in the technology and data industries,” says Murray.

“In the meantime, the board is satisfied that its reduced size and its mix of skills and experience are appropriate for SCA’s current needs.

“We will review this as SCA’s business and operations, including the current corporate activity, continue to evolve.”