Sports Entertainment Group circling ARN Media as radio stock slumps

It might very well be time to remove the microphone socks and hang up the cans, because another radio war appears to be brewing in the background.

According to The Australian's DataRoom, Sports Entertainment Group (SEG) is understood to be considering a takeover of the Australian Radio Network (ARN).

As it currently stands, ARN Media owns 58 radio stations across Australia along with the digital audio platform iHeart. 

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Its share price has fallen 45% over the past year, with the drama surrounding The Kyle & Jackie O Show (both the issues while it was on and its later removal from the air) making it a cheaper target in the market.

The publication reports that SEG has been buying ARN Media stock since mid-year and now holds about 2% of the company. 

According to DataRoom sources ARN Media is "in play," though they would not name the party involved. 

They indicated any offer on the table is not yet at a price ARN's biggest shareholders would accept.

Mediaweek has approached both ARN Media and SEN.

SEG's finances

SEG told the ASX in June that it expects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $18 million for the year to June, and net cash of at least $14 million. 

The company credited the FIFA World Cup and other revenue growth for the improved outlook, which is up from earlier guidance of between $15.5 million and $16.5 million.

SEG is run by Craig Hutchison, who owns about 18% of the company. That puts him just behind Viburnum Funds, SEG's largest shareholder with just under 20%, according to Bloomberg data.

Who owns ARN Media

ARN Media's largest shareholder is Samuel Terry Asset Management, which holds almost 23%, according to Bloomberg data. 

Spheria Asset Management owns almost 18%. Southern Cross Media Group holds a 15% stake, which it inherited through its merger with Seven West Media - Seven West had bought into ARN before that holding passed to Southern Cross.

Company backgrounds

SEG was established in 2006 and was previously known as Crocmedia. It owns the SEN radio network, which broadcasts NRL and AFL matches, and also supplies syndicated media content for other sports competitions.

According to several radio insiders who asked to remain anonymous, the deal, on its face, is “hard to understand” considering ARN's ambitions, as regularly spruiked by CEO Michael Stephenson, to be an “entertainment company” and to move into screens. 

On the flip side, SEN has made what one source called “questionable decisions” in the past, highlighting its purchase and subsequent offloading of sports teams.

Another source familiar with both networks then added that “if SEG is genuinely eyeing ARN, it isn't just buying radio licences and a share register; it's buying into an audience and a cultural footprint that looks nothing like SEG's existing listener base” .

The Kyle and Jackie O legal fallout

ARN Media has also been in the headlines over a legal dispute with KIIS FM stars Kyle Sandilands and Jackie ‘O’ Henderson. 

The pair signed a 10-year, $100 million-each deal with the network, negotiated by chair Hamish McLennan and former chief executive Ciaran Davis, though the show's audience numbers have since declined.

On 17 June, ARN Media agreed to pay Sandilands a $12.09 million cash settlement to end his contract, after he had launched an $85 million unlawful dismissal lawsuit.

The company's legal battle with Henderson continues.