Everything old is new again. Southern Cross Broadcasting, Fairfax and Macquarie Media announced at midday that MMG will seek to acquire Southern Cross Broadcasting by way of scheme of arrangement. SBC’s assets include radio stations (2UE, 3AW), various regional Ten affiliates and the Southern Star production house.

Under the proposed scheme, MMG will acquire SBC for $17.41 per share (which implies an enterprise value of around $1.35 billion for Southern Cross). The deal represents an 8.8% premium to Southern Cross share price on 29 June 2007. It will then sell off the radio and production assets to Fairfax for approximately $480 million.

Despite the small premium, the deal certainly doesn’t seem to be a bargain, for either acquirer.

According to the announcement, Macquarie Media will be purchasing SBC’s television assets for $820 million. This is equivalent to an earnings multiple of around 18 times earnings (based on 2006 net profit). Not cheap for a business whose earnings dropped by 6% for the six months ending 31 December 2007. Further, the bulk of the stations being bought by Macquarie Media are Ten affiliates, which have struggled in recent times. Macquarie won’t mind though, Macquarie Media is trading on an earnings multiple of 18.4 itself, so the purchase is almost EPS accretive. Plus, Macquarie will make more money from increased fees.

Fairfax’s purchase of SBC’s radio assets is an interesting acquisition. Combined, the radio and production businesses earned around $15 million after tax last year (although that amount will increase with John Laws leaving 2UE’s payroll). $480 million seems to be hefty price to pay for a business earning $15 million (at least it is growing though). How exactly a production house (responsible for Big Brother among other things), a bunch of radio stations and a newspaper empire would fit synergistically is a question for the Fairfax board. Perhaps Neil Mitchell will switch his column from the Herald Sun to The Age.

Those with long memories will remember that Fairfax exited radio (and television) in 1988 after the prodigal son, Warwick Fairfax, undertook his bungled leveraged buyout of the company. After taking dud advice from Laurie Connell, Fairfax turned to Malcolm Turnbull, who advised him to sell off everything but the biscuits in the Sydney Morning Herald tearoom to pay back the massive debt incurred. Fairfax offloaded the Macquarie Radio network (no relation to Macquarie Media) and its interests in Channel Seven in Melbourne and Sydney (to Christopher Skase).

With the very successful John B Fairfax back in the fold, companies paying top dollar for media properties and Fairfax buying radio stations, it looks very much like 1987 all over again.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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