How Antony Catalano plans to turbocharge Southern Cross earnings

Antony Catalano expects his merger proposal for Southern Cross Media Group could lift its earnings by 50 per cent. Picture: David Geraghty

Further detail has emerged about a merger proposal with Southern Cross Media Group put forward by media entrepreneur Antony Catalano.

DataRoom understands that Mr Catalano made an approach to the Southern Cross board to merge the business with his Australian Community Media publishing operation after being encouraged to offer a bid by the regional broadcaster’s advisers.

But it followed earlier discussions about a deal with former Southern Cross Media Group boss Grant Blackley about a tie-up, and the latest plan was known to be on Mr Catalano’s agenda following ARN’s offer for the owner of Triple M and Hit radio stations, as flagged by The Australian’s DataRoom column on October 23.

The argument of the former chief executive and founder of the online real estate company Domain Group is believed to be that by merging ACM, which includes titles such as The Canberra Times and the Illawarra Mercury, the move could create an uplift in earnings to the business of more than 50 per cent to its current $77.2m of annual earnings before interest, tax, depreciation and amortisation, taking total annual EBITDA to $120m.

The deal would see Mr Catalano vend all of his regional and community newspaper titles into the business, with the exception being the agriculture publishing division, including its title The Land.

In exchange, he would become a holder of up to 20 per cent of shares in Southern Cross Media Group, which he believes would be worth almost 55.6 per cent more when pulled together with his operations and the extra earnings gained.

Based on the current Southern Cross share price of 94c, this could see the group’s market value increase to $350m from its current $225.5m valuation or $455m with its $105m of debt, and Mr Catalano’s holding would be worth as much as $87.5m.

Mr Catalano purchased ACM from Nine Entertainment in 2019 for a price believed to be about $120m.

Since that time, he has built the company’s digital capabilities with 130,000 annual digital subscribers and more than $20m digital revenue from 90 websites with an overall audience of 6.6m.

The Australian media businessman’s assessment is understood to be that he could achieve an EBITDA uplift of about $40m from cost savings and revenue synergies by having more journalists across a multimedia business that would have a broader appeal to advertisers, gaining exposure through print, digital, radio and television assets that have a national advertising presence.

Among ACM’s 14 daily newspapers that would become part of the business would be the Newcastle Herald, The Canberra Times (with 35 journalists in Canberra), The Bendigo Advertiser, the Illawarra Mercury, The Advocate and the Border Mail.

Overall, the merged company would have up to 500 journalists in a move that he would likely argue would save jobs that would be cut through an ARN Media buyout.

Southern Cross’s board may look favourably on the offer as a defensive play, where, with annual EBITDA of $120m, it could then turn around and buy ARN Media, its current suitor.

Southern Cross Media Group, which is advised by UBS, told the market on Friday that it continued to progress with evaluating ARN Media and Anchorage Capital Partner’s proposal received on October 18, after receiving the offer from Mr Catalano on Thursday night.

Southern Cross is yet to respond to the proposal worth 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.

Institutional fund manager Allan Gray remains the kingmaker, with its 22 per cent stake in the stock and also a holding of a similar size in ARN Media, and is known to be of the view that consolidation makes sense between the two camps.

The move by Mr Catalano takes some back to 2019, when Mr Catalano with 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 also 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.