ARN Media’s raid on radio rival gets mixed reaction

Southern Cross Media Group has seen its share price fall more than 13 per cent this year amid tough market conditions. Picture: iStock

Investors in two of the most high profile radio stocks were left scratching their heads on Tuesday as to why ARN Media amassed a 14.8 per cent stake in Southern Cross Media Group.

Media law restrictions preventing ownership concentration in the market means that ARN Media cannot buy its rival, and there’s no other suitor known to be circling.

Acquring the shares at $1.08 each - a 42.1 per cent premiums to the last traded share price of Southern Cross Media at 76c - almost appears to offer a vote of confidence towards its competitor that has the job of taking market share away from ARN Media.

The move sent its shares 20 per cent higher, closing at 92c, while ARN Media’s shares closed down almost 1 per cent to $1.03.

But while some questioned whether outlaying $38.3m for the stake rather than investing in the business organically or through acquistions was the best use of funds for ARN Media, previously known as HT&E, shareholders spoken to by DataRoom have suppored the move and said they backed the Ciaran Davis-led management and the group’s board.

Media groups that had embarked on shareholder capital returns had seen little upside in their share prices as a result, and ARN Media pocketed about $30m when it bought and sold a stake of just over 4 per cent in oOh! Media.

Some wondered whether there could be more to it, where ARN Media in fact does buy the business and sell off assets individually, gaining more value through a break up of the business than for the company as a whole.

A king maker is institutional fund manager Allan Gray, which had owned almost 22 per cent in Southern Cross Media and about 20 per cent of ARN Media.

After Monday night’s raid, Allan Gray now owns 18 per cent of Southern Cross Media Group.

The line from sources close to ARN Media is that the stock was cheap, the radio space is undervalued and it could make money for its shareholders on the investment - even just from the yield paid by Southern Cross Media Group if nothing else.

Southern Cross Media Group has two radio licences for national metro markets - with its Triple M and Hit network brands.

ARN Media owns licences in Melbourne and Sydney with KIIS and The Edge and has exposure to Perth and Brisbane through a joint venture with radio broadcaster Nova.

ARN Media cannot hold an interest of at least 15 per cent in Southern Cross Media Group under the Broadcasting Services Act because they control the maximum permitted two commercial radio broadcasting licences in all metropolitan markets and several regional markets.

Southern Cross Media Group is widely considered among media experts to be undervalued, with shares falling 13 per cent since the start of the year, and some say that there’s an opportunity to strip up to $430m of operating costs out of the business.

The broadcaster has been hit hard by falling profit amid a challenging advertising market, impacted by rising inflation and a weaker economy, and rising costs, while falling out of the ASX 200 means it has lost some support.

The loss of the company’s affiliation agreement with Nine Entertainment in 2021 was also seen as a blow for the company, with Nine instead partnering with regional broadcaster WIN.

Southern Cross Media Group currently has an affiliation agreement with the Ten Network.

There have been previous suggestions about a tie-up between Seven West Media and ARN Media or Southern Cross, and Ten Network has circled the Southern Cross Media television assets that were once for sale.

ARN Media competes fiercely with Southern Cross for talent, poaching radio stars Kyle and Jackie O from Southern Cross almost a decade ago.