01 Oct Southern Cross chair says ‘strong support’ for Seven deal amid fallout
Source: The Financial Review
The chairman of radio business Southern Cross Media insists a merger with Kerry Stokes’ Seven West Media has strong support from most of his major shareholders, after spending the past 24 hours lobbying investors for support and thwarting a bid to block the deal.
Heith Mackay-Cruise spent Tuesday on the phone with shareholders of Southern Cross, which owns the 104 metro and regional radio stations under the Triple M and Hit brands, as well as the Listnr streaming app. The company announced it would acquire Seven West in an all-scrip deal that would forge a media group owning the audio assets, Seven Network and The West Australian newspaper.
Southern Cross faced immediate blowback for the structure of the deal, which involved it issuing nearly 100 per cent of its shares without shareholder approval. Sandon Capital’s managing director, Gabriel Radzyminski, who owns 11.3 per cent of Southern Cross, blasted the deal, labelling it “deworsification” that risked destroying shareholder value.
He immediately submitted a notice to change Southern Cross’ constitution and prevent it from issuing more than 25 per cent of new shares without a shareholder vote.
In a statement on Wednesday, Mackay-Cruise said Radzyminski’s bid would fail. “[Southern Cross] is pleased with the response from major shareholders, which have expressed strong support for the transaction and have indicated they do not support any proposal that would constrain the company’s ability to issue shares as consideration for the merger with [Seven West],” he said.
The company named Antony Catalano and Alex Waislitz’s 15 per cent shareholding via Thorney Investment Group and the 14 per cent voting stake held by Spheria Asset Management as two investors who would not support the resolution.
“The proposed merger of Southern Cross and Seven West has compelling strategic and financial merit,” Mackay-Cruise added, “and provides a pathway to growth while achieving our long-stated ambition of supporting consolidation in the media sector.”
Southern Cross’ merger with Seven West by issuing millions of shares has been seized on by other investors as an example of a “loophole” in ASX rules that allows for radical corporate change that may go against shareholder wishes. Seven West’s investors will vote on the deal, but not those in Southern Cross. The most high-profile example of this tactic was a move earlier this year by James Hardie to buy US group Azek.
Allan Gray managing director Simon Mawhinney on Tuesday said the boards of companies that employ this strategy have “failed shareholders”.
“The boards of companies like Southern Cross should be lined up and shot,” he said.
Mawhinney on Wednesday apologised for the phrase, both to Mackay-Cruise directly and in a statement. “My use of violent metaphors as reported in this article was in bad taste and was very poor judgment on my part. I’d like to apologise unreservedly for this,” he said.
Despite not having a vote, the merger between Seven West and Southern Cross has been welcomed by most of the audio company’s shareholders
Former analyst turned investor Roger Colman, who holds about 2 per cent of Southern Cross for a small consortium, said there were obvious synergies and the deal benefited both sides.
“To take over a television network at the bottom of the market is f— all risk,” Colman said. “They’re talking $25 million to $30 million in cost savings, including co-locating in cities. There are enormous benefits in revenue and talent.”
And yet questions remain about whether the merger will happen. Another Southern Cross shareholder, who asked for anonymity to speak openly, said there were other parties who could step in and spoil the bid – most notably Nine Entertainment, which owns the Nine Network, streaming service Stan, and publishing assets including The Sydney Morning Herald, The Age, and The Australian Financial Review.
“Let’s face it, these companies need to consolidate to survive in this world. I think ultimately, the deal either goes ahead, and you get a more relevant diversified media company, or Nine comes along and says we do want to acquire Southern Cross,” the shareholder said.
“They’ll only get this chance. It wouldn’t take much for Nine to wrestle this out of Seven’s hands. A decent cash bid, the shareholder base would hand the stock over.”
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