SCA, finally getting its due, is open for offers
Southern Cross Austereo is transparently open for offers. It’s surprising, given that CEO and managing director John Kelly spent most of his first year at the company dealing with an overly complicated takeover bid from its main competitor ARN that fell apart after eight months of stalled negotiations.
Now, with reports that Nine and SCA have been in takeover talks, Kelly told Mumbrella he “won’t comment on any particular speculation” from the weekend’s papers, but is clearly open to the concept.
“For some time, myself and the board have commented that we believe that media consolidation is required in Australia,” he said.
“On this transformation journey, our objective has been to be the best possible audio company in Australia, with very much a digital forward focus with the Listnr ecosystem.
“We believe we now are clearly the best audio company in Australia. And, if that means that there’s consolidation afoot in due course, then clearly we’ll consider that – because we think that is an important part of the opportunities for our network and our people moving forward.
“So, we’ll see what happens. I think we continue to absolutely focus on our own business.
“But really, we’re mindful that consolidation may happen in the future.”
John Kelly, SCA’s managing director and CEO
SCA knows it’s a good deal at the moment, and warned its shareholders of this in its full-year results, filed on Monday morning.
“Investment markets undervalue SCA’s business, especially as it transitions from its legacy broadcast operations to high growth digital audio operations,” it noted, under possible ‘risks’.
“Despite the improvement in performance of the company, in the opinion of the directors, SCA’s share price does not reflect the underlying value of the company.”
The market is moving quickly to correct the undervaluation. On Monday morning before the market opened, the company’s market capitalisation was sitting at $157 million. By the close of business, it was over $200 million.
If Nine had made an offer on Sunday, the numbers would already be out of date.
“The market reaction has been very strong to our results,” Kelly told Mumbrella, moments after hopping off Monday morning’s investor call, where he informed shareholders that SCA’s net profits after tax had tripled in FY25. At this point, stocks had jumped by around 18%, and were sitting at $189 million.
“We’ve given a lot of guidance over the last little while in relation to what we think would happen in FY25,” Kelly said. “We mentioned where we thought our debt would go to. [That] we’d like to reinstate our dividend. I think we’ve now done all those things.
“I think the market wanted to see it. They have seen it. And they’ve responded accordingly.
“If you look at the share price performance this morning, it’s clearly demonstrably evident that the market understand and appreciate and now can see, with their own eyes, the story coming to realisation in terms of the results we’ve got today.”
Even an offer that valued the company at $200 million would be underdone at this stage.
“We certainly think our job’s not done. We’ve got some great building blocks in place for FY26. I expect the market will continue to appreciate what we’re doing.”
The Listnr app
The key to the company’s value is its Listnr podcasting platform.
Listnr launched in 2021, after three years in development. It replaced the company’s on-demand audio platform PodcastOne — a branding partnership with a US company of the same name — and consolidated its streaming radio player and podcast library.
The company took a substantial risk when building its own podcasting platform. Main competitors ARN took the long-term licensing route, tying its podcast hopes to US company iHeart.
By mid-2023, SCA declared its “major digital investments are complete, improving both experience and commercial opportunity” and predicted a break-even point sometime in 2024.
Listnr broke even in the second half of 2024, turning a $100,000 profit on revenue of $22.1 million. For FY25, it cleared a $2 million profit. Digital revenue jumped by 28.8% year-on-year to $45.1 million, against $43.1 million in costs.
The platform now boasts 2.25 million signed-up users, with more than 10 million monthly listeners across its podcasts. SCA strikes licensing deals for individual shows, wrapping them into its Listnr ecosystem, but concentrates on its homegrown podcasts. Kelly estimated in March that around 70% of the platform’s downloads were for Listnr-owned content.
“Listnr is profitable after only four years,” he told Mumbrella. “which is a remarkable performance for any business, but particularly a digital audio business. But, the fact of the matter is digital audio continues to grow at 30% plus from a revenue perspective.
“We’ve now got control of our cost base. We can now leverage the ad tech hub that is proprietary to SCA and is a reason why we’re really writing about 50 cents on every dollar in the CRA digital audio market. But our growth engine is undoubtedly Listnr.”
SCA’s growth engine can continue unabated now that Kelly has removed a few of the handbrakes that have slowed progress.
When he took over as managing director and CEO of SCA in July, 2023, main competitor ARN Media had just taken a 14.8% stake in the business. By October, it teamed with Anchorage Capital Partners and lobbed a takeover bid, in which the two company’s assets would be blended, with shareholders of both companies holding stock in a new venture called ARN Newco.
It was a complicated deal, and one that hampered Kelly’s ability to run the business as the progress dragged on.
ARN promised the market a deal would close before Christmas 2023. In early March 2024, ARN’s then-CEO Ciaran Davis was telling Mumbrella “we’d like to move towards that timeline of completion by the end of March.”
A few selections from the Listnr podcast stable.
Kelly was against the deal.
During SCA’s half-year FY24 investment call he warned the process would involve “significant structural challenges, additional costs and operational financial and tax complexities”.
Speaking to Mumbrella in March 2024, he said the deal undervalued Listnr, and the progress it had made since the original October 2023 bid.
“The acceleration of profitability of LiSTNR: we don’t think it’s been factored in appropriately,” he said at the time.
“This is an incredibly complex transaction in that, if it was just a cash offer, then all we’d be considering is that cash offer versus the value of our business.
“It’s not. It’s a cash offer of 30 cents, plus 0.753 per share, in a brand new entity which is ARN Newco, which is KIIS, MMM, and a digital JV which is not even in place yet.
“I think we have built significant value, which by its very nature, given that the offer came on the 18th of October, I don’t think it’s been fully appreciated by the market.”
Less than twelve months after the offer, SCA is valued at 84 cents per share.
The deal fell apart by May 2024, after Anchorage pulled out and SCA rejected a final revised offer from ARN. Kelly was clearly pleased.
“I’ve only been a CEO for 14 months and eight months of that was taken up by corporate activity,” Kelly told Mumbrella in September.
“It’s so much more fun running a business without corporate activity prevailing over you,” he said, before tempting fate: “I’m enjoying the current blue skies.”
The skies were looking clearer still last month, as the new financial year rolled around and SCA announced it had successfully offloaded the last of its regional TV assets and licences.
“With the successful divestment of our regional TV assets, our entire strategic focus is now All About Audio,” Kelly said, echoing the company’s slogan with complete accuracy for the first time.
The only storm on the horizon is activist investor Sandon Capital, who holds over 10% of the company’s shares, and is pushing to boot the entire board over what it deemed an unrealistic executive remuneration scheme among other gripes.
Yesterday, Kelly scored a $380,400 bonus and sales chief Seb Rennie took home an extra $188,000.
Good money if you can make it — and as Tim Burrowes pointed out in his Unmade column — it’s unlikely to be much comfort to those caught in SCA’s redundancy wave earlier this year.
Bonus aside, Kelly was jubilant on Monday morning.
“I actually just emailed our entire executive leadership team, just to thank them for all the effort over the period since the ARN discussion has ended, because we’ve really worked hard as a team to try and transform the business.
“We’re excited because we’re not distracted. We’re very much focused on being the best audio company in the land.”
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Nathan Jolly is the Features Editor at Mumbrella. He joined the team in July, 2023.
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