Jarden buying up shares for mystery party in takeover target Southern Cross Media Group

Southern Cross Media Group has an investment bank buying up shares in the broadcaster. Picture: iStock

Investment bank Jarden Group was believed to have been making efforts to buy up more shares in takeover target Southern Cross Media Group on Wednesday, just one day after major shareholder Allan Gray offloaded a large stake to a mystery buyer.

Sources said on Wednesday, Jarden was active in the market on behalf of a buyer of Southern Cross shares.

On Tuesday, Southern Cross told the market institutional investor Allan Gray had reduced its holding in the regional television and radio broadcaster to 11.97 per cent from 16.44 per cent.

Yet, because the holding of 4.47 per cent is below the 5 per cent threshold of where an acquirer needs to disclose its interest, the identity of the suitor remains unknown.

Some suggested hedge funds could be behind the acquisition, although it would be unusual for such a fund to buy such a large percentage of a company.

It is understood that Paramount, owner of the Ten Network, Seven West Media, ARN Media or any interests of media entrepreneur Antony Catalano are not behind the trading.

Meanwhile, the suitor of Southern Cross Media Group, ARN Media, has extended the contracts for two of its top-rating breakfast shows in Sydney and Melbourne, including KIIS 1065’s Kyle and Jackie O until December 2034 and Gold 1043’s Christian O’Connell until December 2029.

ARN said that the total base fee increases to the duo would be limited to a net total increase of about $2m to $3m per annum.

The contracts also contain revenue-share arrangements which will replace the current audience ratings bonus structure and are designed to reward ratings success only if incremental annual station revenue growth is achieved.

As a result, $7m worth of shares in ARN Media, equivalent to about 7.5 million shares, would be issued to the stars and vest at the end of the contract term.

ARN Media, which as of recent weeks counts Seven West Media as its 19.9 per cent shareholder, and has also had News Corp, publisher of The Australian, as its 13 per cent shareholder for some time, is proposing to buy Southern Cross Media Group with Anchorage Capital Partners (ACP).

Southern Cross, which owns the Triple M and Hit radio stations, is yet to respond to the proposal that landed from ARN, which it describes as complex.

ARN Media made the bid after amassing a 14.8 per cent stake at $1.08 per share when shares were 72c.

Analysts say that the latest buyout offer worth 91c a share equals 5.5 times earnings before interest, tax, depreciation and amortisation. It includes 29.6c per share of cash from ACP and 0.753 ARN shares equalling 61.4c per share or $154m in total.

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 that 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 TripleM 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.

Canaccord believes the deal could add nearly $30m in earnings before interest, tax, depreciation and amortisation for its $165m investment or higher with a restructuring of costs and shedding of lease liabilities.

Shareholders have hopes a merger will take the digital audio venture LiSTNR of Southern Cross and iHeart Radio of ARN Media from loss making to break-even position and the approach sees ARN Media capitalise on Southern Cross’ $15m to $20m spend on its platform.

When the offer was announced, it was worth 94c a share, a 29 per cent premium to its last closing price at 85.5c a share.

Analysts at Canaccord earlier said ARN’s proposal would remake the company as one that is larger, more profitable and with a better growth outlook.

Southern Cross shares on Wednesday closed at $1.015 with its market value at $242m.