As usual the hard heads in the market got the winners and losers right from yesterday’s debt ladened bid for Austereo by Southern Cross Media.
Shares in Austereo jumped 20 cents, or 10.6% to a three-year high of $2.09 after the company yesterday said its directors would recommend the Southern Cross offer for all of the company.
Village shares (Village controls Austereo) shares surged 28 cents, or 10.2%, to $3.03, the highest level since January 2008. They closed up 23c at $2.98.
But Southern Cross shares were hammered, falling 11.5%, or 25c to $1.91, the lowest since September of last year.
Investors clearly see that with a 100% debt-financed bid Southern cross is leaving itself open to again taking on more debt and paying more interest at a time when the direction for interest rates is pointing higher.
And a mooted share issue after the bid closes to refinance $540 million in debt scared some investors in SCM, especially its second largest shareholder Paradice Investments, which expressed concerns about the deal.
The plunge in the share price will see more shareholders pushed towards taking the cash, instead of the shares, which will lift the size of the debt burden.
The stretched nature of the financing also leaves Southern Cross vulnerable to a counterbid from a bigger or richer rival, not that there are many around in the media sector these days.
Under a scheme of implementation agreement, Austereo shareholders would be offered the choice of receiving all cash, all scrip or a combination of the two in accepting the offer, the companies said in a statement yesterday.
Austereo shareholders may receive $2.05 per share in cash, comprising $2.00 in cash and an intended dividend of 5 cents per share announced today by Austereo, Southern Cross said in the statement.
Alternatively, shareholders may receive 0.95 Southern Cross shares for every Austereo share, together with the 5 cent dividend announced by Austereo.
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 edgy programs from Sydney and Melbourne.
It also has a small link to the Nine Network in Southeastern 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 Austereo 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 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 cut their working week to one day from five, which means a huge drop in revenue as their program was networked out of Melbourne.
The offer is subject to conditions including acquiring at least 50.1% of Austereo’s shares by the end of the offer period. With an agreement with Village covering its 52% of Austereo, that condition has technically been met.
The Australian Competition and Consumer Commission and the ACMA must also approve the acquisition.
Southern Cross said it will lodge a bidder’s statement on February 28, the final deadline for investors to register with Austereo in order to receive the dividend under the offer.
Austereo is expected to dispatch its target’s statement to shareholders on March 10.
Southern Cross will fund the acquisition via a combination of new senior debt facilities of up to $755 million and an equity bridge facility of up to $540 million, the company said in its statement yesterday.
That will see debt of the merged company jump sharply.
"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.
Seeing earnings are projected to be around $215 million at the EBIT level, the final debt burden will be close to $650 million.
(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
