Southern Cross Media Group Limited (SCA) will re-engage with Australian Radio Network (ARN) and Anchorage Capital Partners in light of a revised non-binding acquisition proposal that SCA sees as providing better share value and exchange.

It comes after the media group knocked back the Consortium's initial indicative proposal on 7 March, which offered to acquire 100% of the fully diluted share capital in SCA, proposing the re-allocation of SCA and ARN assets into a reconstituted company (ARN Newco) and 29.6 cents cash per share by way of a recommended scheme of arrangement. SCA Chair Rob Murray said the terms "undervalued" SCA, but that the company would be open to improved offers.

The revised proposal on 15 March sees ARN increasing the share exchange ratio to up to 0.87 shares in a reconstituted company (ARN Newco) and $0.296 cash per share, subject to satisfactory completion of outstanding due diligence. This is an increase from the previous 0.753 ARN shares, and an additional $0.10 of value per fully diluted SCA share. The updated offer is worth more than $300m to SCA. The original offer had valued SCA at about $330 million through a combination of cash and shares.

SCA said it reviewed the Revised Indicative Proposal with the assistance of advisers and considered feedback from several of its shareholders.

"The Consortium's revised proposal will provide a significant increase in the consideration for SCA shareholders, and the SCA Board is willing to re-engage on the basis of the higher value now being put forward," said Murray.

SCA said it now plans to engage constructively with the Consortium to enable both SCA and the Consortium to finalise outstanding due diligence. The Revised Indicative Proposal remains subject to several conditions and there is no certainty a binding transaction will eventuate.

Late last week, ARN and Anchorage Capital Partners said they were willing to revise their non-binding indicative proposal to acquire 100% of SCA's fully diluted share capital by increasing the share exchange ratio. The original offer, first made on 18 October 2023, was seen to "undervalue" SCA's network. Upon rejecting the offer, Murray said SCA would consider proposals that "would deliver fair value and be in the best interests of all our shareholders".

The 7 March decision triggered an outcry from SCA shareholders, most notably the major consortium of SCA shareholders represented by Spheria Asset Management, which promptly called for Murray to be removed and a boardroom shake-up for refusing the ARN buyout. Spheria also called for a meeting of shareholders pursuant to section 249D of the Corporations Act - something SCA said today it hadn't yet received. And it asked for any directors of SCA appointed since its latest general meeting be removed.

It's now partially happened. As well as indicating its willingness to re-engage, SCA confirmed today one of its two director, Glen Boreham, would retire as a director effective 27 March 2024, three months earlier than planned and nearly 10 years after taking up the position. The board said it would not seek a replacement for Boreham. Murray however has held on, reiterating his intention to stay on as a director until SCA's annual general meeting. Murray has also offered to remain as chair if the outcome of discussions in relation to the ARN consortium proposal and any agreed transaction has not been resolved post that date.

SCA noted its board renewal plans had included planned intentions for Boreham and Murray to retire as directors during the 2024 calendar year, recognising both directors had served over nine years on the SCA Board. This plan was deferred upon receipt of ARN's Proposal in October 2023, with both men agreeing to remain as directors of SCA to ensure consistency during negotiations.

ARN's conditions

In its revised proposal statement on 15 March, ARN noted the revised offer represented an attractive 29% premium to the undisturbed SCA share price of A$0.730 on 17 October 2023 (46% including franking credits). But it was still defending its original offer in a response to SCA's claims the original offer undervalued its business. The consortium said it disagreed with this assessment, stating it continued to see the Proposed Transaction as a unique opportunity for SCA and ARN shareholders to unlock immediate and long-term value creation in broadcast radio and digital audio.

"Since the Indicative Proposal was made, the quality and composition of SCA earnings has changed. Revenue has declined in SCA's broadcast radio and television operations, and there has been a reduction in 1H FY24 reported EBITDA relative to 1H FY23A and broker consensus estimates. This is being offset by a significant cost-out program that is yet to be independently reviewed by the Consortium's due diligence advisers," the consortium stated. "The Consortium has reconfirmed the Indicative Proposal multiple times since 18 October 2023. In each case, this has been based on partial access to necessary due diligence information from SCA. Importantly, and notwithstanding the underlying operational performance set out in SCA's most recent half yearly results, each of these reconfirmations have reiterated the Indicative Proposal Consideration of 0.753 ARN shares ("ARN Exchange Ratio") and 29.6 cents cash per SCA share."

Notwithstanding the above, the Consortium has shown willingness to adjust the ARN Exchange Ratio to up to 0.870 ARN shares per fully diluted SCA share, subject to satisfactory completion of outstanding due diligence (the "Revised Indicative Proposal"). Based on the last closing price of ARN shares prior to the Indicative Proposal being made, the Revised Indicative Proposal would imply up to an additional 10 cents of value per fully diluted SCA share.

SCA has a market capitalisation of $230.3m and reported $252.6m in half-year revenue in the six months to 31 December 2023, a dip of 2.9 per cent year-on-year. EDBITA was also down from $4.1m to $31.1m over the same period, with net profits down 71.1 per cent to $4.4m.

ARN has now called on SCA to provide "sufficient access" to be able to validate SCA's 2H FY24 financial forecasts, plus related commercial and operational due diligence on the SCA stations being acquired by ARN, and the SCA assets and operations being acquired by ACP. It's also asked for full responses to PwC's outstanding requests for information relating to its financial due diligence on SCA on behalf of the Consortium.