Now for a bit of metro relevance for Australia’s third-placed regional TV broadcaster, Southern Cross Media Group (SCM), and while we are at it, another reduction in media diversity and voice.
Southern Cross Media Group Ltd has made a highly geared 1980s-style takeover bid for Austereo Group Limited, valuing the company at about $706.8 million, according to a statement to the ASX today.
Austereo said in a statement that its directors would recommend the offer to shareholders unanimously, in the absence of a superior proposal.
Under a scheme of implementation agreement, Austereo shareholders will be offered the choice of receiving all cash, all scrip or a combination of the two in accepting the offer.
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SCM is the Ten network affiliate in regional areas, a rather lonely and unglamorous business where the buzz of the metro markets for some of Ten’s offerings, such as The Biggest Loser, or Good News Week, or even MasterChef Australia, falls flat. TV viewers in regional areas don’t very much like the smart, edgy programs from Sydney and Melbourne (nor do some viewers in Brisbane and Perth). It also has a small link to the Nine Network in south-eastern areas of South Australia (and broadcasts some Seven Network programs in Tasmania).
But SCM is also the largest regional broadcaster in the country, with 68 commercial radio stations in 38 licence areas in Queensland, New South Wales, Victoria, Tasmania, South Australia and Western Australia. That means the Austero purchase, if it happens, will need checking with ACMA, the media regulator, to see if there is any overlap because Austero is the biggest radio broadcaster in the country.
Austereo operates two FM networks and one digital network: Today and Triple M, with stations in all mainland Australian state capital cities with two JV stations in Newcastle and Canberra, as well as digital radio brands including Radar Radio. The Today Network consists of: Sydney — 2DAY FM, Melbourne — Fox FM, Brisbane — B105, Perth — 92.9 FM, and Adelaide — SA FM. The Triple M Network consists of: Sydney — 104.9, Melbourne — 105.1, Brisbane — 104.5, Adelaide — 104.7 and Mix 94. Joint-venture stations include FM 104.7 in Canberra and NX FM in Newcastle.
SCM has radio stations on the NSW central coast that might have to be sold because of the fact that the signs from Triple M and 2Day FM can reach there. In Queensland it has stations on the Gold Coast and Sunshine Coast and the Triple M and the B105 signals reach both markets.
2Day also has the powerful Kyle Sandilands/Jackie O breakfast program, second in market but first among younger listeners. In Melbourne, Fox was a powerhouse up to late last year when Hamish and Andy quit. If it wins control, SCM gets to deal all the flak from Sandilands’ occasional bouts of radio buffoonery.
But forget the financial nitty gritty bid details of the offer, they don’t really matter, except to shareholders in Austereo.
What does is the history and the fact that it represents a loss of media diversity, despite what SCM might argue.
There will be a lot of guff said and spoken about how the bid for Austereo, if successful, would merely see one owner (Village), replaced by another (SCM).
But the reality is that Southern Cross, in more ancient times, before Fairfax and Macquarie Media bid and broke it up, was a media player of some note, with Nine Network stations in Adelaide and Perth, and radio stations in several metro markets.
After the break-up, Fairfax took the radio stations and the TV production business (which was sold at a loss by the incompetents at Fairfax).
The Ten stations, held by Macquarie Media, were backed into the shell via the takeover, and the name was changed when the company wriggled free of its sponsors, Macquarie Bank/Group after the GFC, when the Macquarie name was mud.
Huge debts and non-performing media assets in the US didn’t help either. Of course, like all the former Macquarie funds/satellites SCM only moved so far from the former parent. The main fee earner (adviser) on the deal for SCM is Macquarie Capital Advisers, a sort of business version of All In The Family.
Now Southern Cross wants a bit of relevance, the life of a regional broadcaster is pretty boring, transmitting other people’s programs. The radio broadcasting is low cost and not very invigorating either, as the ABC provides more relevant programming in the bush and has higher respect.
So when Village put its Austereo stake on the block 10 days ago, there was a lot of speculation about who might bid. SCM is the first, but it might not be the last.
Footnote: A bit of financial nitty gritty that does matter is the way SCM proposes to pay for its buy, if successful, with a lot of debt.
In fact the bid shows us the bad old days of big debt are back.
“The leverage of the combined business post-transaction if 100% is acquired is expected to be approximately 3x Net Debt /EBITDA, ” the takeover statement said.
(SCM is under-geared right now with debt considerably smaller than equity, in fact at June 30 it had debt of $287 million and shareholders equity of just over $1 billion. The debt burden could top $900 million in the short term, if the bid is successful). It’s also taking on about $209 million of Austereo’s debt.
“SCM Group expects this leverage to decrease in the next 12-18 month as some of the cash flows generated by the combined businesses are used for debt repayment.” That’s always the hope in highly geared takeovers. Let’s hope the current consumer spending slump doesn’t see TV and radio advertisers cutting back their spending plans soon.
SCM had a market cap of about $818 million last Friday. This is a big, high debt deal that reminds me of the sort of deals that helped cripple Fairfax Media two years ago and the late 1980s when TV and radio station buyers had their balance sheets shredded by a recession.
Austereo had a market value of about $650 million last Friday.
This is a deal with no benefits for anyone, the metro listeners to Austero or the regional listeners and viewers to SCM’s fleet of TV and radio stations.