Hopes fade for ARN Media buyout by Kerry Stokes-chaired Seven West Media

Outgoing Seven West Media CEO James Warburton. Picture: Britta Campion/The Australian

ARN Media’s share price has fallen 10 per cent since its rival Seven West Media announced the departure of its chief executive James Warburton, leading some to question if investors took this as a signal that a buyout of the KIIS FM and Gold radio network owner was now off the agenda.

Seven West Media raided ARN Media’s register on November 12, amassing a 19.9 per cent stake, and some believed that the intention of the Kerry Stokes-chaired Seven West was to eventually launch a buyout of ARN Media, with it being keen to own both ARN Media well as ARN Media’s takeover target, Southern Cross Media Group.

ARN Media is bidding for Southern Cross Media Group, which owns Triple M and Hit radio stations, through a cash and scrip offer with Anchorage Capital Partners, but is yet to receive backing for its offer from the target.

ARN Media announced on December 4 that the Australian Takeovers Panel ordered that it needed to sell 6.8 per cent of its holding in Southern Cross because of a technical breach of the Corporations Act after amassing a 14.8 per cent holding in June.

Its share price fell about 5 per cent from 97c in the trading session before the announcement to 92c on December 6.

Southern Cross shares only fell by 3.8 per cent over the same period.

In such instances, it would typically be the share price of the target that declines rather than the share price of the bidder.

One possibility is that with Seven West Media announcing December 7 that Mr Warburton was being replaced by chief financial officer Jeff Howard by June 30, perhaps the market took this as a sign that a buyout was no longer on the cards, sending the share price south.

Since December 7, the ARN Media share price has fallen 10.2 per cent, whereas the Southern Cross Media Group share price has increased 1.6 per cent.

Both ARN Media and Seven West are known to have held merger talks over time.

A scrip deal was never going to appease shareholders, but perhaps Mr Stokes has put the brakes on any big spending and won’t agree to commit the cash needed to buy ARN and Southern Cross.

Mr Warburton has always had ambitions to grow the free-to-air broadcaster and consolidate the market.

With the current macroeconomic conditions the way they are, some are wondering if the industry is at a pivotal point, where consolidation will not be happening locally but globally as well.

The Wall Street Journal reported at the start of this week that the Shari Redstone-controlled company behind cable channel owner Paramount Global, National Amusements, is considering a sale.

It comes amid a period when job cuts are looming amid a weaker-than-expected ad-sales market.

Paramount has cable networks such as Nickelodeon and BET and broadcast network CBS as well a movie studio, considered the jewel in the crown.

That’s sure to have ramifications for the Paramount-owned free-to-air-broadcaster Network Ten, based in Australia.

Meanwhile, other local media assets have been up for sale this year including the cinema chain Hoyts, while radio broadcaster MediaWorks in New Zealand is on offer through Goldman Sachs and the country’s pay television provider, Sky Network Television, had a buyout proposal that was rejected.

In every situation, the commonly featured party is Anchorage Capital, which has bid for all the assets at some point and is jointly trying to buy Southern Cross Media Group with ARN Media.

Its strategy clearly appears to be creating an orphanage for unloved media assets.

It would then have a larger entertainment company, but the question is whether it can make such deals work and at what price.

And the other question Southern Cross Media Group is asking is whether the private equity firm is real in its intention to buy Southern Cross, or is it just keen to get a glimpse inside the organisation for a better industry understanding.

Anchorage Capital Partners had earlier lobbed a lob ball bid for the regional television arm of Southern Cross when it was for sale.

And many in the industry are curious about Paramount’s plans for Ten.

Television production and content costs have increased what with the recent Hollywood writers’ strike, and high costs for buying sports content, and margins are being squeezed.

Perhaps a sale of Paramount paves the way for more global consolidation.

Netflix, with a $US200bn market value, is said to have held talks with Paramount before, reports the WSJ, but they have since cooled.