SCA advisor gives Seven merger the go-ahead
SCA CEO John Kelly will move to head up audio in the merged entity
Independent experts employed by Southern Cross Austereo to audit its proposed merger with Seven West Media have given the deal an enthusiastic green light. The approval has been comprehensively rejected by investor Sandon Capital, which holds around 11.3% of SCA stock.
Financial advisory firm Kroll said the merger was fair, reasonable and in the best interests of SCA shareholders in the absence of a better offer. On Kroll’s analysis, SCA will be contributing 46.7% to 47.3% of value but will own 50.1% of the new entity. This sits on the higher end of what would be considered to be the “fair range” (42.2%-51.9%).
But Sandon founder and managing director Gabriel Radzyminski told Mumbrella the merger undervalues the company, moves away from a clean audio-only strategy and is designed to reduce the influence of investors such as itself.
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”The Kroll valuation to us would seem to materially undervalue the company as it stands today, which corresponds to what [SCA] directors say they think about the company.”
Radzyminski said he did not want to get involved with TV and print (SWM owns not only the Seven TV network but also The West Australian, The Sunday Times and community newspapers).
“ The reality is that we think that the ‘all about audio’ strategy that [SCA] have been pursuing since 2023 is a good strategy,” Radzyminski said.
“We think audio is far more attractive than free to air television and print media, and as a Southern Cross shareholder, we don’t see the benefit in exposing ourselves to free to air television and print media.”
Gabriel Radzyminski (Sandon Capital)
Kroll said earnings per share for the merged entity would be 17.2c on FY25 actuals, compared to SCA’s standalone earnings of 6.3c. The report cautioned that earnings would be hit by transaction costs in the first year, and that cost efficiencies would take some time to kick in.
In terms of these efficiencies, Seven and SCA have previously said they expect to find between $25m and $30m in cost savings after the merger, primarily in shared functions, real estate, and duplicated corporate costs. That target was labelled “conservative” and “reasonable” given precedents in Australian media.
The report, authored by Kroll’s Celeste Oakley and Ian Jedlin, explains the main motivation for the proposed merger as being a lack of scale.
“In spite of its digital audio success, Southern Cross remains a relatively small player within the wider Australian media landscape, with revenues in FY25 of $421.9 million and little ability to share its content across a broader platform. Relative to global competitors in the audio space such as Spotify and Apple, and even local media players such as Nine Entertainment Co. Holdings Limited (Nine), News Corporation (News Corp) and Seven, Southern Cross does not benefit from significant scale.”
Kroll’s green light is significant because SCA shareholders are not getting a vote on the proposed merger.
After the deal, which still must be approved by Seven shareholders and regulators, Seven CEO Jeff Howard and SCA chair Heith Mackay-Cruise will assume those roles in the merged entity (there will be a short interim where Seven owner Kerry Stokes will be chair).
SCA CEO John Kelly will head up audio, and the board will be split 4-3 in Seven’s favour.
Mumbrella has contacted SCA for a response to Sandon’s objections.
