The Nine Network has abandoned its takeover ambitions (at least for the time being) for Southern Cross Austereo. This morning it sold its 9.9% stake in Southern Cross for $1.54 a share. Seeing Nine paid $1.15 a share earlier in the year, that’s a nice profit of around $30 million before financing costs.
After getting a regional affiliation deal with Southern Cross earlier this year (which replaced the long time Nine affiliate, WIN, which is owned 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.
But that route has been abandoned and the market reaction on Friday morning told the real story
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 punters and hedge funds had built into the share price has gone.
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 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 Mr Marks, except for the odd mention of “unintended consequences”, whatever that means.
“Nine seeks that all media reform be deferred until the issue of licence fees is addressed," he said in the Nine submission."Changing any ownership rules before addressing onerous and unfair licence fees has the potential to distort the market and have 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 confused situation in the Senate.
The sale is a smart move by Nine because with TV ad revenues under more pressure and cash flows equally pressured (and the Network promising to rebuild its prime time schedule for 2017 after copping a flogging for most of the year from Seven), Nine needs to have enough money to invest in these new programs and not in the maybe chance of a big, costly media acquisition that will distract management from its most important task, running a commercial TV network profitably.
