ARN acquisition bid still on the table despite latest hurdle


ARN has confirmed it is still considering the acquisition of certain SCA radio assets – whilst SCA has expressed its frustration – a day after news that Anchorage Capital Partners was pulling out of the negotiations.

Whilst Mother’s Day is usually reserved for family time and leisurely lunches, radio executives instead found themselves in hastily-convened meetings after one of the biggest proposed takeovers in Australian radio history took a tumble at the final hurdle.

This morning, ARN Media has made the following announcement on the SCA proposal:

 Withdrawal of ACP from the Consortium and the Consortium Proposal

“Following a period of due diligence engagement with SCA, ACP has notified ARN of its withdrawal from the Consortium. As part of its due diligence, ACP and its advisers completed an extensive review of Regional TV.

In light of a continued decline in the trading performance of Regional TV since the Consortium Proposal was made in October 2023, the further deteriorating outlook for Regional TV, and the existing long-term contractual obligation of SCA for outsourced TV broadcast transmission, it does not support ACP’s Regional TV investment thesis. As a result, the Consortium must withdraw the Consortium Proposal.

ARN thanks ACP for its constructive engagement as a Consortium partner and recognises the considerable investment of time and resources that ACP has made over the last seven months.”

 ARN Indicative Proposal

 “Notwithstanding ACP’s decision, ARN continues to consider the acquisition of certain SCA radio assets and the combination of ARN and SCA digital audio assets as a unique opportunity to unlock both immediate and long-term value creation.

 ARN and SCA shareholders were both expected to benefit from the creation of a focused metro radio network of 10 stations across Sydney, Melbourne, Brisbane, Adelaide and Perth, anchored by the KIIS and Triple M brands in each location, an expanded and growing regional radio network, and a scaled, fast-growing digital audio platform with enhanced profitability and cash flow potential.

 Post-transaction, ARN was expected to have FY24PF revenues of over A$440 million, FY24PF EBITDA (pre-AASB16) of over A$105 million before combination benefits, and leverage of less than 1.5x. This excludes material expected future upside from the Digital Joint Venture, which was expected to contribute meaningfully to profit and cashflow in the near term.

 To preserve this compelling opportunity for ARN and SCA shareholders, ARN intends to engage with SCA on a revised non-binding indicative proposal (the “ARN Indicative Proposal”).

 Under the ARN Indicative Proposal, ARN would acquire the same radio assets as under the Consortium Proposal plus assume 100% ownership of the combined digital audio assets of ARN and SCA (the “ARN Transaction Perimeter”).

 SCA shareholders would receive up to 0.870 ARN ordinary shares for each fully diluted SCA share subject to the satisfactory completion of due diligence, consistent with the Revised ARN Exchange Ratio pursuant to the Consortium Proposal. SCA shareholders would also retain their shareholding in SCA or receive their equivalent shareholding in a newly listed demerged entity that would hold the radio and television assets previously expected to be acquired by ACP under the Consortium Proposal (“New SCA”).

New SCA would own a national network of 44 radio stations, comprised of 5 HIT and 3 Gold-branded metro stations and 36 regional radio stations. It would be listed on the ASX with an independent Board and management, and is expected to have approximately A$350 million of FY24PF revenue and A$40 million of combined FY24PF radio and television EBITDA (pre-AASB16) on a stand-alone basis before adjusting for expected margin expansion from identified material cost efficiency initiatives.

 New SCA would operate with a conservative capital structure of approximately 1.0x FY24PF EBITDA2 and have sufficient flexibility to pursue standalone growth opportunities.

 New SCA would also enter into a long term content supply agreement with the ARN-owned digital audio platform, unlocking an additional revenue stream for New SCA and enabling both parties to benefit from combined scale and efficiency of investment in digital audio.

 ARN is supportive of working with SCA to explore any alternative proposals it may receive with respect to New SCA that provide either greater value or cash certainty for SCA shareholders, including alternative proposals that relate to a third party acquiring New SCA’s radio or Regional TV assets on a combined or separated basis. Further, ARN is prepared to work with SCA to review the ARN and New SCA transaction perimeters to optimise the strategic and value outcome for both sets of shareholders, to ensure a strong competitive outcome for each business.”

 Next steps relating to the ARN Indicative Proposal

 ARN and SCA have been working collaboratively, are now substantially complete on mutual due diligence, and are progressed on transaction documentation. ARN remains committed to delivering an attractive and certain outcome to SCA shareholders at the earliest possible date, and to the extent the ARN Indicative Proposal is supported by the SCA Board, considers that a binding transaction could be entered into in coming weeks.

 ARN looks forward to constructively engaging with SCA on the ARN Indicative Proposal. At this time, ARN shareholders do not need to take any action in relation to the ARN Indicative Proposal. ARN will keep the market informed in the event of any material developments.”

 ARN Media Chairman Hamish McLennan says “I firmly believe ARN is the most well-run audio business in Australia, and we are in a position of strength to progress the ARN Indicative Proposal for the benefit of both ARN and SCA shareholders.”

“It would deliver a business of the scale necessary to compete against global platforms. Market restructuring has been talked about for a long time, but the fact remains that today’s regulatory environment is not reflective of the market in which Australian media operates and urgently needs government action.”

In its statement this morning, Southern Cross Media Group Limited says:

“SCA was only informed by ARN of its intention to withdraw its proposal on Saturday, 11 May 2024.

At considerable expense, SCA has engaged with the Consortium’s proposal for nearly seven months, during which time the Consortium has reconfirmed its proposal to SCA at least five times, most recently just seven business days ago. SCA is disappointed that the Consortium has now withdrawn its proposal.

 SCA notes that ARN refers in its announcement to an intention to engage with SCA on an alternative indicative proposal involving SCA shareholders retaining the assets that would have been acquired by ACP under the Consortium’s proposal through a newly listed demerged entity, while transferring SCA’s digital audio assets to ARN. ACP would not be involved in ARN’s alternative proposal.

SCA will evaluate any formal proposal provided by ARN.

SCA recommends shareholders take no action in relation to ARN’s proposed alternative proposal and will continue to update shareholders as required by its continuous disclosure obligations.”

SCA Chair Heith Mackay-Cruise said “Over the past seven months, SCA’s management team and advisers have worked diligently and collaboratively with the Consortium to evaluate the Consortium’s proposal and to enable the Consortium to substantially complete its due diligence. This has required considerable cost and management effort by SCA.”

“It is frustrating that the Consortium has now withdrawn its proposal in circumstances where any potential material concerns should have been identified much earlier in the process.”

“I wish to acknowledge that the SCA management team has supported the due diligence process without losing focus on daily business activities. Broadcast advertising markets continue to be challenging, but SCA has grown its share of metro radio and digital audio markets during this year. In addition, our LiSTNR digital audio ecosystem delivered positive EBITDA for the first time in April and is on target to do so for the June quarter.”

“We remain open to considering proposals that would deliver fair value and be in the best interests of all SCA shareholders.”

ARN will hold its annual meeting tomorrow.

ARN Media owns 58 radio stations including KIIS FM and Gold.

SCA has 99 radio stations in its stable, including the Hit Network and Triple M.

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Recent comments (12)
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13 May 2024 - 9:18 am

Video killed the radio merge

13 May 2024 - 9:35 am

What an absolute mess!

As they often say: time is the enemy of getting deals done. It’s now been seven months since the original offer from ARN and it was not a good sign that due diligence was taking that long.

I feel for the staff and management at both networks who have been in limbo for so long. ARN need to either wrap this up quickly (perhaps with a new, knockout offer) or just walk away.

Prime Possum
13 May 2024 - 10:05 am

SCA have their pants down now that one review into regional TV shows that it’s dying so hard that not even owning 99 radio stations would make it worth while. Who watches TV anymore?

13 May 2024 - 10:16 am

Tricky situation for ARN, the way they have treated many talent and staff during this process. A lot of uncertainty.

13 May 2024 - 10:20 am

How are J and A feeling at WSFM?

Ashton Crusoe Retrousse
13 May 2024 - 11:47 am

The commercial industry chasing its own tail.
The question is: Why are they even doing this?
I feel really sorry for any potential job losses.

13 May 2024 - 11:52 am

Why would SCA accept moving the deckchairs with radio stations, what’s in it for them?? Anchorage would have been better to make an offer for SCAs radio business and leave SCA with just TV.

Andy Grace
13 May 2024 - 12:00 pm

Yes, an utter mess. It looks appalling for the management concerned and the industry as a whole, but Anchorage did the right thing by its shareholders. We all know the radio side of the business is holding up surprisingly well for now but the television side is in dire trouble.

Paramount is virtually assured of being acquired by the Sony and Apollo consortium and they have no interest in running any television networks. Last week they publicly confirmed they would dump Britain’s Channel Five and that means TEN is also set to be divested. Who would be ‘brave’ enough acquire it is another question.

It’s been obvious since before the ARN-Anchorage was first mooted that the future of the TEN Network was in doubt and hence there was a serious business risk implied in any merger contingent on supply of affiliate programming for SCA.

It’s now all but certain TEN will exit news entirely – sooner rather than later – and that will save in excess of $20M from the bottom line. That’s the model WB has adopted for TV3/three New Zealand and they are giving that network a go as a low budget alternative however it won’t solve the core issue of ubiquitous content creation in a 100% online world.

At this stage I’m led to believe The Project will be the only news-like content as it’s delivered via Roving Enterprises and is more a comedy show which supports the target demographic. Considering they use a considerable amount of TEN’s news content at the moment they may need be creative with the use of user generated video content. I can certainly help there.

The commercial free-to-air industry is now changing at light speed and really this was to be expected. The vast majority of industry management have been massively over-optimistic with regards the viability of ‘legacy’ media and the fixed overheads that come with it.

That’s not entirely the fault of senior management as most of the world has been clueless about what any sustained hike in global interest rates would do to their business models … as I have been banging on about here and elsewhere for a decade now. My only error was believing the entire Western world would use common sense and realise you can’t solve a debt problem with orders of magnitude more debt.

Eventually it was a logical certainty the idiocy of ZIRP and QE would consign us to a bond market crash, a real debt crisis and stagflation or worse an inflationary recession until the zombie business models are culled from the system. We have a long, long way to go.

Despite economists getting everything wrong – as Keynesians seemingly always do – that’s the environment we now have to deal with. The value of fiat currencies are going to smashed against the BRICS wall and large bets on old business models will go very bad. America and Britain are in even worse shape than us and there is zero clue of how to deal with this problem other than create more war which is now futile as it just digs us into a deeper hole.

M&A is an absolute necessity, just not this deal as it’s only a bandaid solution. The real problem is structural and must be faced immediately from the board level down. Otherwise there will be no free to air media left at all when we finally pull out of this coming depression.

Neil Alexander
13 May 2024 - 10:27 pm

Could someone please explain to me being a layman, on how the gold stations (with their current personalities) operate after the take over ?
Are the current gold personalities moving to the triple m network.

From a layman’s perspective the whole takeover / merger / swap this for that, sounds like a debacle.

14 May 2024 - 12:54 am

I think it would be safe to assume that any big name talent currently on the Pure Gold stations would be moving across to Triple M under ARN’s control. ARN would definitely not be leaving them behind, and pretty much implied as such when announcements were made on Christian O’Connell’s new ARN contract last year.

Given this new proposal is basically ARN picking apart the ‘good’ bits of SCA and tossing the rest, how or why would SCA’s board agree to that? ‘New SCA’ would be left significantly weaker with 8 metro stations, a handful of regionals in markets ARN don’t want or already have a stronger presence, and regional TV assets primarily affiliated to Network 10 that is potentially about to be divested by whatever entity takes over Paramount.. madness!

14 May 2024 - 8:26 am

How embarrassing for ARN that this has all happened, what a mess.

And all the cocky staff over the last few months bragging about “a done deal” – ouch!

14 May 2024 - 7:49 pm

Some talent are now talking about jumping ship or getting out of radio completely.


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