Nine Entertainment, Southern Cross talk $2bn tie-up

Nine and Southern Cross admit they have been holding high-level ‘discussions’ about a merger.

Southern Cross chairman Peter Bush and chief executive Grant Blackley. Picture: John Feder

Nine Entertainment and Southern Cross have admitted to holding high-level “discussions” about a $2.2 billion merger but have not yet reached an agreement on a deal.

Talks commenced in recent weeks with company representatives undertaking top-line due diligence towards a transaction that would combine Australia’s No 2 free-to-air TV network with radio stations including 2DayFM, Triple M and the Hit network.

Both companies disclosed the talks in statements to the ASX confirming an exclusive report in The Australian yesterday.

It remains unclear if the two companies can reach an agreement as executives moved to hose down the report in background briefings.

“Nine confirms that from time to time over the past few years there have been discussions with Southern Cross Media on various commercial and broader business transactions,” Nine said in stock market disclosure.

“Nine and Southern Cross Media have not reached any agreement on any transaction. Should an agreement be reached at any time, Nine will make an ­appropriate announcement to the market in accordance with its disclosure obligations.”

Southern Cross said the company had been “reviewing strategic options” following the arrival of chairman Peter Bush, a corporate turnaround specialist, and newly installed chief executive Grant Blackley, a former Network Ten executive.

“However, the company has not received or made any merger proposal,” Southern Cross said in its statement.

Nine’s disclosure sent shares in the company down by 3.86 per cent, or 6c, to $1.50, as the local bourse declined by 1.45 per cent.

Southern Cross shareholder Allan Gray received several bids yesterday morning for large ­parcels of shares. As revealed by The Australian’s Business Now blog, bidders were chasing tens of millions of shares, or about 1 per cent to 3 per cent, of the company.

Sources said the bids had come in around Southern Cross’s $1.11 market price and Allan Gray was not selling. The fund manager had cut its holding to 16.9 per cent from 17.9 per cent earlier in the week. Speculation was rife on Tuesday that a strategic buyer was chasing 14.9 per cent of Southern Cross but nothing eventuated. The company’s shares were up by 0.5 per cent yesterday.

Although a full merger would breach the population reach rule by taking Nine’s licence area to more than 75 per cent of Australia, advisers believe the deal could unfold as a two-step acquisition.

Nine would buy Southern Cross’s metropolitan radio assets and park its remaining regional assets in a holding entity until the government changed the law.

A proposal by Communications Minister Mitch Fifield to retire the reach rule will be put to cabinet within weeks.

Sources close to the negotiations said the two companies were a long way apart in terms of current value and future earnings.

“This is a 50-50 chance,” a source close to the talks told The ­Weekend Australian.