The Kerry Stokes-chaired Seven West Media will likely be entitled to install a director from its camp on to the ARN Media board after raiding the stock at the weekend and amassing a stake up to 19.9 per cent.
But whether it takes up the opportunity is still to be determined, and it may refrain from this if the move prevents it from taking part in further media consolidation.
A source close to Seven West told DataRoom on Monday that boardroom representation at the radio broadcaster, which counts KIIS FM stars Kyle and Jackie O within its stable, “makes sense”.
The source said “there’s no reason” the company would not gain a board seat.
Seven West reached out to ARN following its raid at the weekend.
Seven West’s major shareholder, Seven Group, has amassed stakes in listed companies it considers undervalued in the past, including Beach Energy and Boral, of which it is now a majority, shareholder.
At the UBS Investment Conference in Sydney on Monday, Seven Group chief executive Ryan Stokes was understood to have told investors that the company was not currently looking at any other acquisitions during a presentation closed off to the media.
Its focus right now was on bedding down its acquisition of Boral, the country’s largest building material provider, of which it owns just over 70 per cent after gradually creeping up the register in recent years.
Institutional investor Allan Gray is among the shareholders that have sold an interest in ARN Media to Seven West, selling 7.5 per cent of its 19 to 20 per cent holding.
Spheria Asset Management, which had 10.9 per cent, has also offloaded a 9 per cent stake.
However, News Corp, publisher of The Australian and the owner of just over 13 per cent in the company, has retained its interest.
News Corp chairman Lachlan Murdoch controls the rival radio broadcaster Nova, and retaining the stake gives News Corp a seat at the table in its future and the option to buy ARN Media should Nova ever be sold or there is a change in media laws that allows for further consolidation.
DataRoom revealed online on Sunday that Seven West created a major upset in the battle for Southern Cross Media Group by raiding the register of its suitor, ARN Media, getting its hands on 19.9 per cent of the stock.
It is understood that a number of institutional investors, who had been keen to cash out of ARN Media, were sellers.
Allan Gray is a king maker in the Southern Cross battle with close to 20 per cent in ARN Media and Southern Cross.
The Sydney-based fund manager is known to be keen to see consolidation happen in the traditional media industry and believes radio broadcasters facing headwinds from the weak economic conditions and disruption from digital businesses have been over sold by investors.
The Stokes-backed television broadcaster outlaid $50.1m buying a 14.9 per cent on market of the radio broadcaster that has the KIIS and Pure Gold stations, and a further 5 per cent cash settled equity swap through Barrenjoey at the weekend.
Southern Cross owns the Triple M and Hit radio stations within its network, and is a regional free-to-air television broadcaster.
Shares were purchased in ARN Media at $1.10 each, a 29 per cent premium to Friday’s closing price.
Seven West confirmed the purchase of ARN Media shares in a statement on Monday, saying the media business had existing and longstanding commercial partnerships with the radio network and had an interest in ensuring their continued and long-term success via a direct investment in ARN Media.
Seven West said while aware of the corporate activity in the sector surrounding consolidation, including the buyout proposals, it was supportive of ARN Media’s current business direction and had no intention of launching a takeover for ARN Media or Southern Cross.
“Seven West Media has a disciplined approach to value creation in the media sector,” said chairman Kerry Stokes.
“We believe that this strategic holding presents strong value for our shareholders in light of sector consolidation activity.”
The move comes after Seven West last week refinanced its $600m of debt through Grant Samuel to $525m over four years and takes its leverage from 0.9 times earnings before interest, tax, depreciation and amortisation to 1.15 times.
Seven West said to the extent current advertising market conditions result in Seven West leverage being above the target of 1 to 1.5 times at the end of December, the recently announced $60m in cost initiatives would be expected to bring leverage back within the target range within a short period of time.
“Seven West’s objective is to be Australia’s most connected news, sport an entertainment brand,” said chief executive James Warburton.
“Our investment in ARN Media aligns with our strategic pillar of partnering for growth, and we look forward to continued collaboration across our two companies.”
Seven West, with a $420m market value, has held buyout talks with the $256m ARN Media in the past and is known to be eager for consolidation.
However, its large debt level has meant any deal with another listed group would need to happen with its scrip, although a cash and scrip offer is believed to have been made in the past.
Late last week, there was talk in the market about another possibility where another opportunistic private equity firm comes over the top of ARN Media in the battle for Southern Cross, such as Mercury Capital, Allegro or Platinum Equity, and proposes a structure like what is on the table from ARN Media.
A turnaround fund may see an opportunity to get in on the action and benefit from the upside of a merger deal where it buys both ARN Media and Southern Cross, and like ARN Media’s plan, sells the assets it cannot own under current media laws to the third party Anchorage Capital Partners.
Southern Cross, which is advised by UBS, told the market on Friday that it continued to progress with evaluate ARN Media and Anchorage Capital Partner’s proposal, received on October 18 and then valued at just over $225.5m.
Southern Cross is yet to respond to the complex offer, worth 91c per share (shares on Monday were trading at 92c), with the highly nature of the deal taking time to assess.
It includes 29.6c per share of cash from private equity firm Anchorage Capital Partners and 0.753 ARN shares.
It would result in Southern Cross shareholders owning about one-third of the combined entity.
ACP is in the mix to take assets that ARN Media would need to offload to appease media regulators, which forbid a broadcaster having two or more licences in a single market.
DataRoom reported last week that Antony Catalano had also lobbed a merger proposal with Southern Cross where he would own 20 per cent of the business and vend in his own regional and community media newspaper stable with titles including The Canberra Times, The Illawarra Mercury and The Newcastle Herald.
The move by Mr Catalano takes some back to 2019, when Mr Catalano and his wealthy backer Alex Waislitz raided Prime Media Group when Anchorage Capital Partners and Seven West Media bid for the business.
The Nick Bolton-led Keybridge Capital, of which Mr Catalano is a director, has applied to the Takeovers Panel on the grounds that ARN Media’s move to buy 14.8 per cent of Southern Cross in June needed to be accompanied by a takeover bid under takeover laws.
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