Seven West Media Ltd (ASX: SWM) and Southern Cross Media Group Ltd (ASX: SXL) have announced a $400 million-plus merger, in a deal they say will lead to $25 to $30 million in annual cost savings.
Under the proposed merger, Seven West Media shareholders will receive 0.1552 Southern Cross shares for each share they own.
Seven West is currently valued at $215.5 million, while Southern Cross is valued at $201.5 million.
Seven West's key brands are the suite of Seven television channels, as well as newspaper, The West Australian, and free online publication, The Nightly.
Southern Cross' key brands are the Triple M radio network, the Hit network, and the audio streaming service, Listnr.
Media stocks struggling
Media companies have struggled to remain profitable in the digital age, evidenced by the plunge in the value of Seven West shares over the past two decades.
Back in 2007, the company's shares were valued at more than $15, with Seven valued in the billions at the time.
The stock has been on a relentless march lower over the past decade, however, and now changes hands for just 14 cents.
The company has not paid a dividend since 2017, and made just $17 million in net profits last year on revenue of $1.35 billion.
Southern Cross Media shares have followed a similar trajectory, changing hands for more than $36 back in 2007, and just 84 cents now.
The radio company made a modest net profit of $9.2 million last financial year on revenue of $421.9 million, after posting a $224.6 million net loss the year before.
Southern Cross has been paying dividends, however.
Larger, stronger business to emerge
Southern Cross chair Heith Mackay-Cruise said the merger would create a leading, integrated television, audio, and digital platform.
The combination of Southern Cross' and Seven West Media's leading brands on broadcast and digital platforms establishes an indisputable leader across the critical 25-54 'audience that matters' demographic. The merged entity will offer partners and clients a 'one stop shop' for opportunities to reach this valuable audience across all mediums, leveraging shared content and commercial opportunities to add value beyond the initial cost synergy estimates.
The boards of both companies support the merger proposal, and SGH Ltd (ASX: SGH), the company formerly known as Seven Group Holdings, has indicated it will vote its 40.2% stake in Seven West Media in favour of the deal.
The companies said work had already been done on assessing the cost benefits of merging the businesses.
Southern Cross and Seven West's joint preliminary synergy assessment has identified annual pre-tax cost synergies of $25-30 million, to be realised within 18-24 months post completion. These synergies comprise the reduction of shared corporate overhead, operating expense duplication and facility consolidation. Further work continues to maximise potential revenue synergies and to structure an integration plan to bring the best of both companies together to maximise value for shareholders.
Seven West Managing Director Jeff Howard will lead the new business if the merger goes through.
Seven West shareholders will need to approve the deal, with at least 75% of votes cast and more than 50% of shareholders present at a meeting required to get the deal over the line.
