An improved acquisition offer from private equity firm Anchorage Capital and ARN Media (ASX: A1N) has been favourably received by Southern Cross Media Group (ASX: SXL).

ARN operates the KIIS national radio network. Southern Cross owns 99 radio stations operated through the Tripple M and Hit networks.

Southern Cross recently rejected the consortium’s 18 October non-binding indicative offer of 0.753 ARN shares and 29.6 cents per share cash to acquire all the company’s shares it does not already own.

On 15 March, ARN announced the consortium had adjusted its offer to up to 0.870 an ARN share per Southern Cross share, together with the previously proposed 29.6 cents cash per share, subject to satisfactory completion of due diligence.

On 18 March, Southern Cross said it had reviewed the consortium’s revised indicative proposal with its advisers. The company’s board had unanimously determined it was appropriate to re-engage with the consortium to provide it with an opportunity to finalise its proposal.

Southern Cross chair Rob Murray said the consortium’s revised proposal would provide a significant increase in the return to be received by Southern Cross shareholders.

Southern Cross would therefore engage constructively with the consortium to enable both it and Southern Cross to finalise outstanding due diligence including a full and complete understanding of the likely value of the new entity in which the Southern Cross shareholders would be invested.

On 13 March, Southern Cross had announced it had received notice from Spheria Asset Manager, which manages a substantial stake in the company, that it was seeking the removal of Murray as its chairman and from the company’s board.

Southern Cross said it had been intended for Murray to step down from the board this year but he had agreed to remain for now to ensure consistency during consideration of the consortium’s indicative proposal. Murray had confirmed that he intended to retire no later than the 2024 annual general meeting but offered to remain as chair beyond then if a decision on the consortium’s proposal had not been reached.

The consortium had prefaced announcement of its revised offer by saying that, since it had made its initial indicative proposal − which valued Southern Cross at around $326 million − the quality and composition of the earnings of the company had changed. Revenue in broadcast radio and television operations had declined and there had been a reduction in first-half 2024 financial year reported EBITDA relative to a year earlier. This was being offset by a significant cost-cutting program that was yet to be reviewed by the consortium’s due diligence advisers.

When the initial indicative offer was announced, ARN held 14.8% of Southern Cross having acquired 35.5 million shares on 19 June at $1.08 a share.

The consortium has said its plans to merge and rationalise the broadcasting assets of the two media companies will create value which will flow on to current Southern Cross shareholders when they become shareholders in new ARN entity which will remain listed on the ASX.

The consortium plans to combine most of the ARN and Southern Cross radio and digital audio assets and then redistribute them to create two separate independent national media organisations:

It says the increased size regional radio network will be “more compelling” for advertisers.

At the close of the transaction it is expected that Anchorage will take ownership of all the Southern Cross radio stations not acquired by ARN and will also have acquired three metro and ten regional stations from ARN. This will give the private equity firm an eight-station metro radio station network as well as a regional network.

In addition, Anchorage will take ownership of the Southern Cross television and digital audio businesses. Southern Cross broadcasts 96 free-to-air television signals across regional Australia for independent television networks.

Image: ARN operates the KIIS national radio network.