Cash bid to trump ARN Media offer for Southern Cross

Regional broadcaster Southern Cross Media Group remains in play. Picture: iStock

Analysts at Macquarie Group believe that a rival offer from Antony Catalano for Southern Cross Media Group would likely be more attractive to shareholders than what’s currently on the table from ARN Media if it was all cash.

As reported by DataRoom on October 23, speculation is mounting that Mr Catalano, who controls Australian Community Media with Alex Waislitz, is keen to disrupt ARN Media’s buyout plans of the business, although some believe that if he does bid, it’s unlikely a full cash offer would be on the table.

The understanding is that some shareholders of Southern Cross are keen to secure cash to enable them to stage an exit out of the traditional broadcasting sector where both ARN Media and Southern Cross operate.

Anthony Catalo. Picture: Stuart McEvoy

Macquarie analysts said in a research note that they believed another bid for the company was likely, although they believed that the amount was unlikely to be materially higher, but involve all cash instead.

It comes as the Nicholas Bolton-led Keybridge Capital that counts Mr Catalano as a director is challenging ARN Media’s raid on the Southern Cross Media Group through the Takeovers Panel.

On June 19, ARN Media told the market it bought 14.8 per cent in Southern Cross, securing some shares from institutional investment firm Allan Gray, which announced on June 22 it had reduced its relevant stake to 16.44 per cent from 21.95 per cent.

Keybridge’s argument is that the raid breached the Corporations Act’s takeover rules and that ARN should have launched a bid at the time.

As a result, it should be forced to divest some shares, which would be unable to be traded for about six months.

Sources spoken to by DataRoom believe that the view among some in the legal community is that the breach was a technical one, and in such cases, it would likely warrant a slap on the wrist.

The panel was expected to rule on the application by Wednesday.

Macquarie has put a $1.22 per share valuation on Southern Cross based on the expansion of a cost cutting program to $15m from $10m, implying 35 per cent upside on the current share price.

They said that in their view a cash offer for Southern Cross was “more palatable” for shareholders than a scrip-heavy offer from ARN Media.

The analysts said that Southern Cross Media Group trading conditions were resilient, with first quarter broadcast revenues steady.

Southern Cross, which owns the Triple M and Hit radio stations, is yet to respond to the proposal that landed from ARN in October at 91c per share, with the highly complex nature of the deal taking time to assess.

It includes 29.6c per share of cash from private equity firm Anchorage Capital Partners (ACP) and 0.753 ARN shares.

It would result in Southern Cross shareholders owning around 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 one market.

ACP would have eight metro radio stations, 35 regional stations and the Southern Cross Media television business.

Should the deal proceed, ARN Media would gain the Triple M metropolitan radio network and cede three Gold stations to ACP, which could add 1 per cent to its share of radio audiences, and give up three Gold stations to ACP.

ARN Media would acquire 51 stations and send 10 in the other direction, bringing it to a total of 88 stations, significantly bulking up the regional radio offering.

Southern Cross is advised by UBS, while the bidders are advised by Jefferies.

Southern Cross shares on Tuesday closed at 90c, valuing the business at $216m.