Southern Cross Media Group Ltd (ASX: SXL)'s proposed merger with Seven West Media Ltd (ASX: SWM) is in the best interests of Southern Cross shareholders, an independent expert's report has concluded.
Southern Cross and Seven West announced plans to merge in late September, with Seven West Media shareholders to receive 0.1552 Southern Cross shares for each share they own under the deal.
Strength in scale
The merger would create a diversified media group, bringing together Southern Cross' radio networks, including Triple M and the Hit network, with Seven West's television networks, as well as The West Australian newspaper and the free online publication The Nightly.
The two companies stated at the time that the merger, which would create a company valued at approximately $400 million, would yield annual cost savings of around $25 million to $30 million, alongside annual revenue of approximately $1.8 billion.
Following the implementation of the merger, Southern Cross shareholders would own 50.1% of the merged entity, with Seven shareholders owning the rest.
Both companies have commissioned independent expert's reports into the proposed merger, with Southern Cross releasing its report to the ASX this morning.
The report's authors, Kroll, said the deal, which does not require a shareholder vote from Southern Cross shareholders, was positive for them.
As they said in their report:
In our opinion, we consider the scheme is in the best interests of Southern Cross shareholders in the absence of a superior proposal. Our analysis of the underlying equity value contributed by Southern Cross shareholders compared to the underlying equity value of the combined group (inclusive of synergies) that they will receive indicates that Southern Cross Shareholders should benefit from an increase in the underlying value of their shares.
Multiple merger benefits
The report said the proposed merger would bring together two complementary businesses, and their combination, "will result in an integrated multi-media platform which is expected to have strong reach across the Australian advertising market''.
The report stated that the merger offered several strategic benefits, including the ability to leverage audience crossover to enhance user experience and provide advertisers with better analytics and targeted marketing.
The increased size of the group would also enable it to withstand the challenging structural changes affecting the media sector, the report said, "with the combined group's greater diversification and size (providing) an enhanced ability to withstand structural shifts in the advertising market and mitigate the impact of cyclical downturns in any single market''.
Other potential benefits included improved negotiating power with suppliers and improved offerings to advertisers through its greater national presence and brand strength, the report said.
The report also said the merger ratio, that is, the number of shares being offered to Seven West shareholders, was also considered fair.
The merger requires the approval of Seven West shareholders only.
