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ARN Media and Anchorage Capital’s $225m takeover faces regulatory hurdles

ARN Media (ASX:A1N) and its partner, private equity firm Anchorage Capital Partners, will have to navigate key regulators before finalising their $225 million non-binding takeover offer for rival radio broadcaster Southern Cross Media (SCA).

ARN owns major radio stations, including KIIS FM, home to Kyle and Jackie O in Sydney, as well as the Pure Gold, CADA, ARN Regional, and iHeartRadio brands. On the other hand, Southern Cross houses the national Hit and Triple M networks.

The two partners have proposed splitting the radio networks into two separate and independent groups in an attempt to gain approval from key regulators—the ACCC and ACMA (the primary media regulator).

However, the bid faces further challenges because News Corp Australia owns 13.2% of ARN and is the second-largest shareholder, following media specialist fund manager Allan Gray Australia, with a 20.2% stake. Lachlan Murdoch, the News Corp chair, controls the Nova Entertainment network in Australia, which could pose conflicts of interest.

Nova and the Nine Radio business, anchored on 2GB in Sydney and 3AW in Perth, would be the next biggest radio networks in the country after the four networks controlled by ARN and SCA.

In statements to the ASX on Wednesday morning, the companies confirmed that ARN and Anchorage had made an indicative proposal. Under this proposal, Southern Cross Media shareholders would receive 0.753 ARN shares and 29.6 cents in cash for each Southern Cross share they own. This implies a total value of 94 cents for each Southern Cross share, which represents a 29% premium to the last share price of 73 cents on Tuesday. With 239.9 million shares in issue, the bid values Southern Cross at $225.5 million.

However, the offer price falls well below the 2023 peak of around $1.24 at the beginning of the year and is also less than the 98 cents the shares were trading at in July.

Speculation about a looming takeover had been growing, with The Australian Financial Review reporting on Tuesday that the offer would be announced as early as mid-week. ARN acquired a 14.8% stake in Southern Cross in June, triggering speculation at the time.

ARN stated in its announcement that it planned to separate Southern Cross’s assets and its own into two national media organisations “that will compete independently of each other on metro and regional radio.” However, if this split occurs, it would not differ significantly from the current situation where the networks are in separate corporate structures, except that, under the ARN proposal, they would all be controlled by a single company and board with oversight and the ability to change policies and management of the networks.

ARN CEO Ciaran Davis claimed there was a significant opportunity to create shareholder value by bringing together both brands. He stated, “ARN is ideally positioned to support and operate an expanded regional radio network and, as a combined group of scale in digital audio, positioned to compete efficiently and effectively with international competitors,” in the statement to the ASX.

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