Southern Cross Media Group received only one bid for its regional television business when it was placed on the market in 2022, and it came from Anchorage Capital Partners.
However, DataRoom understands that the offer from Anchorage was in a form where the company was doubtful it would follow through on the offer, and so the regional television business was withdrawn by Southern Cross Media for sale due to a lack of interested buyers.
Fast-forward to 2024, and this time, it is the reluctance of Anchorage to take on the regional television business rather than a desire to buy it that has derailed its acquisition of Southern Cross Media Group with bidding partner ARN Media.
There was talk it could be having doubts on the deal, as reported by this column on March 3.
The chatter is that Anchorage had months to assess the future performance of the regional television operation that has an affiliation agreement with Network Ten, but it only came into focus in recent weeks.
When it first bid for Southern Cross Media in October with ARN, the forecast for regional television revenue decline was in the single digits – now it is in the double digits, as the Wall Street Journal reported this week that some major corporates like Ritz cracker maker Mondelez were spending about 15 per cent of their advertising budget on television advertising this year, down from 42 per cent three years ago.
And perhaps what transpired is that the private equity firm Anchorage first asked its bidding partner ARN Media to fund more of the deal while it reduced its price, and the Australian listed broadcaster refused to do so.
At the time that Southern Cross had its regional television business up for sale, its earnings before interest, tax, depreciation and amortisation for the unit had soared by 59.7 per cent to $38.1m for the 2021 financial year to June.
For the six months to December 2021, it hit $17.5m, up 27.3 per cent on the previous corresponding period.
Latest numbers show the regional television unit generated $9.8m for the six months to December 2023, down 31.2 per cent.
Sources say the company back then wanted a price about three times the division’s EBITDA.
As well as the future earnings outlook, the long-term contractual obligation for outsourced television broadcast transmission was also a deterrent for Anchorage.
Complicating matters is that Ten’s owner Paramount is in the process of being sold, leaving its future uncertain.
Earlier, there was a view Ten could buy the television unit, but now most see Ten as being placed in run off mode by its US parent company.
Paramount may stage an exit in the similar way Warner Brothers did with New Zealand television operation Newshub across the Tasman.
One outcome is that Southern Cross Media Group may cut its affiliation agreement with a major metropolitan broadcaster all together.
It leaves some asking the question if ARN Media will not take the regional television business, and neither will Anchorage Capital, what party would buy it or the demerged entity of media assets that ARN Media does not want?
And all this means that most see an outcome where the Southern Cross board agrees to the latest proposal as unlikely.
Southern Cross describes the proposed spun off media business by ARN as sub-scale and less liquid.
And the big unknown is whether Antony Catalano will actually follow through on a rival bid after his earlier play.
Mr Catalano, the Australian Community Media proprietor, with his wealthy backer Alex Waislitz, have recently increased their holding to 8.13 per cent from 7 per cent Southern Cross and are anticipated to arrive with a rival left field offer.
The fresh ARN Media proposal sees Southern Cross shareholders continue to receive up to 0.870 ARN shares per Southern Cross share for assets ARN was originally planning to buy.
But now the existing assets ARN did not want that were to go to Anchorage Capital, including regional television, five HIT and three Gold-branded metro stations and 36 regional radio stations, would sit in a newly listed demerged entity owned by Southern Cross shareholders.
ARN says it values the deal at $1.20 a share, or $287m.
SCA has 99 radio stations including the Hit Network and Triple M stations and ARN Media owns 58 radio stations including KIIS FM – home to ratings juggernaut The Kyle And Jackie O Show, which recently expanded to Melbourne – and Gold.
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. It would also own the Southern Cross digital audio assets.
Southern Cross shares on Monday fell almost 9 per cent on news of the derailed deal.
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