A decision by SCA’s board to reject or accept a merger proposal with ACM could be announced as soon as today but both sides have previously indicated their intent to have a decision by the end of June. SCA declined to comment on yesterday’s board proceedings and after an interview with Mi3 earlier this week, Catalano did not return calls.

Two days ago, however, Catalano was upbeat about what a deal with SCA would do for the two businesses – combined revenues he said would approach $700m, close to $100m in EBITDA and cost out efficiencies which would add another $30m in earnings, propelling it to a top three media company on a profit basis.

But it was the opportunity to do something “transformational” with a combined business that Catalano said was most compelling. 

Since acquiring ACM in 2019 – The Canberra Times, Newcastle Herald and The Land included – Catalano & Co have sold off the property portfolio that came with the deal. Catalano suggested the $70m in divested property equated to a “cheap” 1x earnings multiple on the acquisition – and embarked on a digital overhaul which now has 150,000 digital subscribers generating $23m plus in annual recurring revenue. In a combined entity, Catalano projects 250,000 digital subscribers, shared content between regional mastheads, radio and TV and a window to create a next generation media group. 

Slicker sickener

For the market at large, ACM is seen as a hokey regional publisher. Catalano is less concerned about perceptions in the investment community given ACM is privately held but he bristles at the “metropolitan media snobs” in agencies and some trade media commentators who he said have made wildly inaccurate claims on digital subscriptions with no fact checking or calls – the latter he said should f*** off. Catalano said it was a predictable metro arrogance that didn’t understand the different dynamics and loyalty in regional markets between audiences and local mastheads – and the digital transformation that ACM had undergone. 

“In some of areas like Warrnambool, 55 per cent of our subscribers are now living in Melbourne, wanting to stay in touch with their community.” 

When an exec at Fairfax, Catalano said “I got to see first hand the size of this business and the connection it had with its communities, the almost impenetrable ownership that it has of its audiences because in so many cases they're often fairly remote from the major cities of Melbourne and Sydney and no one really gives it much media coverage, other than ACM papers. We have these incredibly sticky audiences who rely heavily on it because we're the only source of truth in the area to some extent.”

More broadly, digital subscriptions were growing but Catalano said the transformation program included tech being deployed across ACM’s titles for 400 journalists who now, for instance, have live feeds on screens informing them of which stories are being read by whom along with suggestions on angles that are landing with readers – some of that kit is from specialist AI firms like Australian-based Incites, which turns audience data into predictive news lists. “It’s one thing to say you're digital, it’s another thing to now understand the data,” Catalano said. 

Trade surplus

This audience loyalty, digital subs strategy and newsroom tech deployments coupled with an appetite to create a new world media company less reliant on traditional advertising was the opportunity in a merged entity, Catalano said, where an equity swap would see ACM’s owners hold a 40 per cent-plus stake in SCA. He insists he doesn’t want to run SCA but instead would continue running ACM and develop new business models for the group. 

“If media looks at itself and says, what's happened to us, the answer is we've been disintermediated by every single business in in the world,” he said. "Whether you're selling bikinis, gelato, machinery, cars or whatever, they all have their websites. They've got a media channel now. They've got an ability to buy online and they've become media players. What the media hasn't done is become the customer or taken on the customer in areas where it can be both.

“One of the best initiatives that we've come by recently is Farmers Finance Australia. We've attracted nearly $400 million of loan inquiries and tens of millions of dollars of loans in documentation phase – that's a brand new business, weeks old. Some brokers come into our papers, they advertise the ability to go get you a better mortgage, they get the lead and they convert it. Well, why can't we do that?”

Catalano said ACM was “basically transforming into marketplaces” that that have historically belonged to ACM as advertising customers. “We're heading down the path of selling non-perishables, whether it's fertiliser, whether fencing, piping, things that we can run through distribution outlets we can sell. So when I think about the media and how do you monetise and optimise the audiences you've got, rather than thinking I’ll go and see Katie Page and Gerry Harvey and ask them to spend another million bucks when you know, the tide is going out. For me, it's a marketplace.”

But in a merged SCA-ACM deal, Catalano also sees growth from the ad market for a single-stop, cross media regional super player. The two businesses would hit $100m in digital ad revenues “pretty quickly”. 

Quietly confident

“I want to be able to bring the continued digital transformation and the marketplace divisions into the business as a new way of thinking about how media reinvents itself for the future.”

And how does he think that’s all landing with the SCA board? “Given the amount of time and effort that has been put in, they're genuinely engaged. I think the feedback to date is that they're impressed with the magnitude of change in our business, the transformation that ACM has undergone which is probably little known to the market - and we didn't care. We’re a private company.”

So what happens if the SCA board rejects the proposal? Catalano declined to comment until after an announcement but based on form in his blocking tactics via a stake in Prime when Seven was trying to acquire the regional broadcaster, anything is possible. Catalano’s camp has a circa 13 per cent stake in SCA. It could go to 19.9 per cent before triggering a takeover or alternatively accumulate 3 per cent of SCA shares every six months and effectively stymie any alternative takeover or merger deals SCA might entertain. 

Either way, the SCA board decision will trigger another round of media action and intrigue. 

Update: SCA has rejected the deal. Per the ASX announcement:

Southern Cross Media Group Limited (ASX: SXL) (SCA) announced on 28 May 2024 that it had decided to investigate whether a proposal from Australian Community Media (ACM) for SCA to acquire certain assets of ACM would align with SCA’s strategy and be in the best interests of SCA shareholders.

Following review with ACM and consultation with major shareholders, SCA has decided not to pursue ACM’s proposal. ACM’s proposal would have involved SCA acquiring a portfolio of ACM’s key print and digital news publications and its agriculture division.

ACM’s digital and regional capabilities and content hold some attraction for SCA. However, SCA has concluded that the relevant assets do not align with SCA’s audio-focused strategy and would not create value for SCA shareholders.

The SCA Board therefore considers it would not be in the best interests of SCA shareholders to pursue ACM’s proposal.

SCA has appreciated the constructive and open engagement from ACM’s leadership and management team over the past four weeks and wishes ACM well for its ongoing digital transformation.

SCA recommends shareholders take no action in relation to ACM’s proposal. SCA will continue to update shareholders as required by its continuous disclosure obligations.

SCA’s guidance provided on 15 May 2024 for the full financial year to 30 June 2024 remains unchanged.