Southern Cross Media Group Ltd (ASX: SXL) shares dropped sharply a day after its proposed merger with Seven West Media Ltd (ASX: SWM) was announced, as it emerged a group of its shareholders could be seeking to stymie the deal.
Southern Cross told the ASX on Wednesday that late on Tuesday, it received a notice under Section 249D of the Corporations Act from Sandon Capital, looking to requisition a shareholder meeting.
As Southern Cross explained:
The notice was executed by the registered holders of more than 5% of Southern Cross' ordinary shares — One Fund Services Limited and One Managed Investment Funds Limited — requiring that the directors of Southern Cross call and arrange a general meeting to consider the attached shareholder resolution.
The resolution, Southern Cross said, proposes to amend the company's constitution with regard to its ability to issue shares.
The amendment proposed by the resolution would restrict the ability of Southern Cross to issue more than 25% of its shares without shareholder approval. Southern Cross notes that if the amendment were made it would be inconsistent with the proposed merger announced yesterday with Seven West Media.
Southern Cross shares fell more than 7% to 83 cents on the news, while Seven West shares were steady at 15 cents.
Resolution won't pass, Southern Cross says
Southern Cross said on Wednesday that the resolution requested by Sandon Capital was likely doomed to failure, given that two of its own shareholders had indicated they would vote against the resolution, which would need more than 75% support to pass.
Southern Cross advises that shareholders collectively representing more than 25% of its shares, being Thorney Investment Group (15%) and Spheria Asset Management (14%) have advised that they are not supportive of this form of resolution and intend to vote against it. Based on this statement of intention, the resolution would not be passed, and the board and management will focus their efforts on the implementation of the proposed merger which the board has determined to be in the best interests of all Southern Cross shareholders and delivery of the synergies and value accretion expected from that merger for Southern Cross shareholders.
Southern Cross and Seven announced the proposed merger, which would create a media company with assets across television, newspapers and online news outlets, radio, and podcasts, on Tuesday.
The deal was expected to generate $25 to $30 million worth of cost savings across the merged group.
Both companies have struggled to generate substantial profits in recent years, with the market value of each plummeting over the past decade, from valuations in the billions to just north of $200 million for each company now.
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.
