Strategy eats synergy for breakfast: Why SCA rejected Catalano’s bid
Welcome to an end of week update from Unmade. Today, we explore the strategy behind Southern Cross Austereo’s decision to rebuff Antony Catalano for a second time – and what might happen next. And further down, a respite on the Unmade Index.
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Catalano’s bid was better than it looked
Yesterday, to the surprise of few people, Southern Cross Austereo’s board rejected a proposal to take ownership of some of Australian Community Media’s key mastheads.
Underlying the lack of surprise, the SCA share price didn’t even twitch. That’s unusual when a potential deal dies.
However, the proposal deserved to be taken more seriously by the outside world than it actually was. There was a reason – beyond the fact that ACM proprietor Antony Catalano has become one of SCA’s biggest shareholders – why SCA went through due diligence. And there was also a reason why they didn’t proceed – strategy.
I suspect the numbers added up, albeit via making savings through job cuts. Combining the regional newsrooms of ACM with SCA’s journalism, and doing the same with sales too.
ACM’s agricultural titles, with The Land the jewel in the crown, are underestimated.
The nearest equivalent in the UK – the AgriBriefing group, including Farmers Guardian – sold three years ago for the equivalent of about $40m. In part, the value of agricultural titles is because the farming community has been slow to move away from print, and partly because of the opportunity to offer farming and pricing data.
In Australia, Catalano – who made his first fortune through real estate publishing with The Weekly Review in Melbourne, later acquired by Fairfax Media – wanted, and no doubt still wants, to create a giant of regional classifieds. Not just via his View Media Group which is already a (distant) third player in real estate, but in the likes of jobs and automotive too.
But that would have meant an entirely new strategy for SCA which has been pursuing a different vision – that of pure play audio. It would have also seen Catalano emerge with a large enough stake in SCA that he would have ended up as de facto proprietor.
Yesterday was a signal from SCA’s board that they prefer their own plan.
The audio strategy
Not they they will necessarily get the time and space to pursue it. ARN Media is still circling. ARN’s scheme – if it hadn’t been scuppered by bid partner Anchorage Capital Partners getting cold feet last month – would have seen SCA broken up for parts, with ARN taking the best bits, and the creation of a new, standalone streaming company and second, weaker, radio company.
One of the blockages for SCA is its continued ownership of its declining regional TV licences. In the last half year, profits from the company’s TV division declined 31% from $14.3m to $9.8m. The next number will be worse again.
Regional TV licences have little future proofing – the metro networks own the streaming rights.
Yet nobody wants to be the chump who gives up the regional TV licences for nothing. At some point there’ll be a restack of the spectrum. The government can make more revenue by auctioning the airwaves to the telcos, and will likely be willing to grease the broadcasters’ palms to make it happen faster.
But waiting for that moment costs SCA clarity of its strategy in the eyes of the market. I’m sure the board is considering other ways of getting its TV arm off the books.
Mostly, SCA carries the Ten signal into the regions. But Ten owner Paramount has its own distractions in the US, so seems unlikely as a buyer at any price. In Tasmania, SCA carries the Seven signal. Seven West Media is, to put it mildly, going through its own issues too.
A TV deal for the Cat?
My suspicion is that Antony Catalano may yet enter the equation, as a place for SCA to offload those TV licences. That would tie into his regional powerhouse strategy.
He’s also got form for picking up unloved, badly understood assets cheaply. He and business partner Alex Waislitz acquired ACM cheaply from Nine as detritus from its takeover of Fairfax Media. Nine’s shareholders were willing to tolerate owning The Age, The Sydney Morning Herald and the Australian Financial Review, but declining regional print assets was a bridge too far.
So Catalano and Waislitz got ACM for a song, rode the wave of generous government support during Covid and sold off the printing presses real estate to emerge debt free (so far as I understand it) at the other end.
Maybe they could make the same offer to SCA.
Could SCA make an aggressive move on ARN?
At some point, could SCA become the predator? ARN Media’s market capitalisation fell below $200m for the first time yesterday. SCA is currently on $146m.
Factor in the net debt of each company, and that gives ARN an enterprise value of $272m and SCA $253m.
The best part of ARN Media‘s original idea is the concept of a single audio streaming company carrying all of SCA and ARN’s content. That’s still smart.
The Cat’s proposal may be over, but the prize remains.
Unmade Index improves
In what has become an unusual thing for the Unmade Index, more ASX-listed media and marketing stocks grew than shrank yesterday.
The best performer was Sports Entertainment Group, owner of SEN Radio, which rose by nearly 22%. Pureprofile, Motio and Vinyl Group also saw big gains.
The Unmade Index lifted by 0.41% to 475 points.
Time to leave you to it. We’ll be back with Best of the Week tomorrow morning. Among other things I’ll be thinking about where this week’s dramas at Seven West Media leave us; the fall of Qantas in the best airline rankings, and what yesterday’s impressive appointment of Lizzie Young as CEO of Commercial Radio Australia says about the sector’s ambitions. I’d better get on with it.
Toodlepip…
Tim Burrowes
Publisher – Unmade
tim@unmade.media
