Independent expert endorses Southern Cross tie-up with Seven West Media

Southern Cross Media’s independent expert has endorsed the radio group’s merger with Seven West Media as “fair and reasonable”.

Kroll Australia says the proposed tie-up is in the best interests of Southern Cross’ shareholders, who will benefit from being part of a bigger, diversified group with higher earnings and a stronger balance sheet.

“The combined group will have improved financial capacity and market positioning to fund investments in digital platforms, content creation, and technology infrastructure tempered by and constraints arising from its higher leverage,” Kroll said in its report on Tuesday.

The $420 million “merger of equals”, announced in late-September, will see SWM shareholders receive 0.1552 shares in Southern Cross for every one of their shares in SWM.

Southern Cross owns the Triple M and Hit radio brands, the LiSTNR audio app and a network of regional radio stations.

However, its management believes the bigger combined group resulting from the merger will be more attractive for advertisers, enabling them to target more people in the critical 25-54 age demographic, the so-called “audience that matters”.

The merger would also help the merged company combat increased competition for eyeballs, listeners and advertisers from global technology giants, including YouTube, Spotify, Apple, Amazon, Netflix and TikTok.

Kroll noted that while Southern Cross had been a leader in broadcast radio for more than 40 years, radio markets around the world had undergone “significant structural changes with consumers moving away from traditional media towards on-demand, digital audio products (including podcasts and music streaming)“.

“This has led to Southern Cross experiencing substantial declines in its traditional broadcast revenues and earnings and to pivot towards the digital audio market, whilst maintaining its market position in traditional broadcast radio,” it said.

Simultaneously, there had been big user take-up of Southern Cross’ LiSTNR digital audio platform, with the group reporting its first year of positive earnings last financial year from its digital audio business.

“The success with the LiSTNR platform has resulted in an improved growth outlook for Southern Cross in the face of the weaker outlook for traditional media assets,” Kroll said.

However, in spite of that success, Southern Cross remained “a relatively small player within the wider Australian media landscape”, with annual revenues of about $422m and “little ability to share its content across a broader platform”.

The combination of Southern Cross and SWM, owner of the free-to-air Channel 7 television network, as well as The Nightly, The West Australian and thewest.com.au, will generate annual revenues of nearly $2 billion and earnings before interest, tax, depreciation and amortisation of about $233m.