Finally something sensible from the Nine Network, chaired by the former treasurer Peter Costello. This morning it sold its 9.9% stake in Southern Cross for $1.54 a share — a nice $30 million profit, seeing the company paid $1.15 a share earlier in the year.

But after getting a regional affiliation deal with Southern Cross mid year (which replaced the long time Nine affiliate, WIN, which is owned by Bruce Gordon), Nine had been expected to sit on its stake and turn it into a bid for Southern Cross once the Federal government managed to change the media ownership and TV audience reach rules. Nine CEO Hugh Marks signalled a change of heart about the media rules changes when he called on the government to get rid of the remaining licence fees instead of changing the rules. That was in Nine’s submission earlier this week to a Senate inquiry into the proposed changes.

In other words, money, cash retention, cash flows and not spending money unnecessarily on what could be a silly deal (at too high a price), is now the new mantra at Nine (and at Seven). Not that you heard that reason mentioned by Marks, except for the odd mention of “unintended consequences”.

The decision to sell is obviously a vote by Nine that those changes will not come quickly enough, or at all, given the situation in the Senate and the simmering opposition to any change in some parts of the National Party who fear the elimination of local news coverage (for them) in regional markets if the networks are allowed to merge.

The early reaction in the sharemarket told it all: in a market down almost 1% in the first hour of trading, Nine shares jumped 3.7% to $1.005, while Southern Cross shares fell more than 8% to $1.55. In other words investors see Nine as benefiting from the sale — not just the profit, but the absence of a value-destroying deal and all the distractions associated with it). Southern Cross shares fell because the chances of a takeover has vanished, so the premium for control the greedy punters and hedge funds had built into the share price has gone for the time being. — Glenn Dyer

Peter Fray

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