Will Southern Cross Austereo and Nine Entertainment end up ‘married’ after all

Despite recent denials from Southern Cross Austereo Chairman Peter Bush that SCA is not for sale, The Australian reports that Nine Entertainment and Southern Cross Austereo have recently been in merger talks.

Whilst all media groups are lobbying and watching closely what the Government will do with regard to an upheaval of the current media ownership laws, it seems that the two companies are ‘dating’ at the moment. They are not ‘engaged’ as yet but is a ‘marriage’ in the wind?

The Australian reports that Nine and SCA have been looking at a structure that doesn’t breach the current media rules. The plan would be Nine would buy SCA’s metropolitan radio stations and park its regional assets in a holding entity until the government changes the law.

Following the recent AGM SCA CEO Grant Blackley called for cross media laws to be abolished, Chairman of SCA Peter Bush recently denied rumours of a possible “sale of the network” to Nine Entertainment. Generally talk of a sale or merger can be quite destabilising for radio or any media companies. Bush referred to the rumours as a “distraction”.

Radio and media companies naturally have to be able to increase profitability and whilst that can happen organically through ratings and revenue growth, given the changed media landscape with the growth of online consumption, increasing scale is a way to lift profitability and share price. And it also potentially gives the company a competitive advantage.

A deal between SCA and Nine would be almost a merger of equals, with Nine worth $1.37bn and Southern Cross $849 million. SCA’s share price has been enjoying good increases lately and is now around $1.10.

SCA is almost a ‘bargain’ given its market cap was over $1.4 billion and is now about $850 million, around a half a billion dollars less than it was.

Usually in most takeover’s the acquirer’s share price drops given the increased risk, while the target’s share price usually lifts. But at the end of the day it will depend on the deal. Television and radio assets have always been considered a potent combination because of cost and sales synergies and cross promotion opportunities. Many US, UK and European media groups own both. The laws were last reviewed almost a decade ago and a lot has changed since then. They were originally set to be dumped in 2006 when then-communications minister Helen Coonan introduced her media reform package.

There would be considerable synergies in news, sales, programming, IT, admin and there would be increased cross promotion opportunities for both radio and TV in a merged company. This would make a Nine/SCA merger a powerful combination and competitor. You could expect big culls at some point after a merger to ensure cost ‘synergies’.

If the Nine / SCA merger were to go ahead there are major cost benefits, sales synergies and greater audience delivery for any new enlarged media company but, also there are major cultural challenges to be overcome. The greatest challenge in any merged media company is to harness the great talent, programming brains, key management and best staff. As well as building a new (merged company) winning culture. A lot of egos have to be taken care of too.

If a merger were to take place the enlarged media group would be able to deliver better packaged advertising solutions for clients across various delivery points. Chances are SCA shareholders will be the winners.

You can read The Australians full story here.