SCA merger with Seven West clears first hurdle

A report finds the mooted $420m merger between SCA and Seven West would provide the audio company with a more diversified portfolio.

Kerry Stokes with wife Christine Stokes. Picture: Colin Murty

The proposed merger between Southern Cross and Seven West is “in the best interests” of the audio company’s shareholders, according to an independent report released on Tuesday, paving the way for the formalisation of the biggest media tie-up in Australia since Nine Entertainment swallowed publishing giant Fairfax in 2018.

The report, conducted by risk advisory firm Kroll, finds the mooted $420m deal would provide SCA with a more diversified portfolio, while its audience crossover could help “withstand structural shifts in the advertising market and mitigate the ­impact of cyclical downturns in any single market”.

“Other potential benefits of scale include likely improved negotiating power with suppliers and customers and improved ­offerings to advertisers through its grater national presence and brand strength.”

Under the terms of the proposed deal, SCA shareholders would own 50.1 per cent of the merged entity, with Seven shareholders owning the rest.

Seven West is due to release its own independent assessment of the deal later this month, and regulatory approvals are also pending, but if no significant stumbling blocks are unearthed during those forthcoming processes, the merger could be finalised before Christmas.

There has been speculation that Nine Entertainment could lodge an “interloper bid” for SCA, having held preliminary discussions about a possible tie-up with the audio company earlier this year, but sources have told The Australian any such move is highly unlikely.

In his first media interview since the proposed merger was announced on September 30, SCA chairman Heith Mackay-Cruise addressed the fierce backlash to the way the deal was structured, which denied SCA shareholders the opportunity to vote on it.

“There’s always going to be a healthy tension … between the board and between the shareholders. And I think that’s good for the economy at large,” Mr Mackay-Cruise said.

“We did not need any approval from the ASX. We didn’t ask for a waiver. We didn’t need it. But we put in two additional mechanisms to support shareholder rights – both the independent expert report that has confirmed (the proposed merger) is fair and reasonable and in (shareholders’) best interests, and secondly, the fiduciary carve-out.”

Southern Cross Austereo chair Heith Mackay-Cruise

The fiduciary carve-out gives SCA the right to terminate the agreement with Seven West if it receives a superior offer from a third party in the four weeks after the release of Tuesday’s independent report.

Asked why he felt Seven West was a good fit for SCA, Mr Mackay-Cruise identified the benefits of consolidated media assets in the current market, and the shared demographic targets of the two entities. “These media assets … reach 100 per cent of the Australian population. And secondly, both Seven West Media and (SCA) target the 25 to 54-year-old demographics, male and female,” he said. “That is the kind of sweet spot of where we both play. That’s important because of the monetisation model of our advertising revenue.

“We’ve said to the advertising community that by putting these together, we create a one-stop-stop solution for advertisers that are targeting 25 to 54-year-olds.”

Southern Cross owns the Triple M and Hit radio networks and the LiSTNR app, while Seven West owns the nation’s second biggest free-to-air broadcaster, the only major state newspaper in Western Australia, as well as online title The Nightly.

If the merger proceeds, Mr Mackay-Cruise will assume the chairmanship of the combined entity, with current Seven chairman Kerry Stokes intending to step down in February.