Crocmedia merger with Pacific Star Network to proceed

CEO-elect Craig Hutchison

• Combined Pacific Star Network and Crocmedia have annual revenue of $48m with $10m EBITDA
• Crocmedia founders Hutchy and Chris Giannopoulos join Pacific Star board
• How much will Hutchy earn as chief of the merged media businesses?

Pacific Star Network (PNW) is proceeding with the merger with Crocmedia by acquiring 100% of the equity in Crocmedia in exchange for issuing 91.6m PNW shares to the shareholders and executives of Crocmedia.

Here are some of the highlights from the announcement from PNW to the ASX today.

• Crocmedia is an Australian sports content and entertainment business with capabilities to deliver brand stories to national, metropolitan and regional audiences with unique and exclusive content via multiple platforms including radio, television, online, in-stadium and events.
• The merger will create a leading sports content and entertainment business of scale with complementary services across multiple media platforms, providing a clear point of differentiation and an attractive platform for growth.
• The combined group will have a compelling radio broadcast footprint comprising two Melbourne-based owned broadcast licences and syndication agreements with 200 frequencies in 88 radio markets across metropolitan and regional Australia.
• The PNW board believes strong cost and revenue merger synergies are achievable, and has identified a minimum of $3.0m pro forma cost synergies and further potential revenue synergies not yet quantified.
• Combined group pro forma revenue and EBITDA of over $48m and $10m respectively, including identified pro forma cost synergies4, for the 12 months to October 2017.
• PNW will raise $10m in cash from the placement of 40m new shares at $0.25 per share to pay out its existing debt facility which is due to mature on 30 March 2018 and support growth initiatives.
• Viburnum Funds, a 19.5% PNW shareholder, will cornerstone the placement with an $8.25 million investment.
• The merger is subject to shareholder approval at a general meeting expected to be held in March 2018.

Merger Overview
The merger is based on a like-for-like valuation of PNW and Crocmedia and a PNW share price of $0.25 per share (being the undisturbed 30-day volume weighted average price at the time of negotiation of the term sheet for the transaction).
PNW delivered unaudited revenue of $22.7m and EBITDA of $3.5m for the trailing 12 months to 31 October 2017.
PNW will also raise $10m in cash from the placement of new shares at $0.25 per share conditional on the merger completing.
Viburnum, a 19.5% PNW shareholder, will cornerstone the placement with an $8.25m investment. PNW intends to allocate $1.75m of the placement to other strategic investors and Crocmedia shareholders and executives.
Crocmedia shareholders and executives will receive 91.6m new shares in PNW as consideration for the sale of Crocmedia. Some Crocmedia shareholders and executives will participate in the placement. Post completion of the merger and placement, current Crocmedia shareholders and executives are expected to own approximately 47% of PNW.
Crocmedia shareholders and executives will enter into a voluntary escrow agreement in respect of the consideration shares for 18 months in respect of 100%, and 24 months with respect of 75%, of the consideration.
All placement participants will be required to enter into an escrow agreement for 12 months in respect of placement shares.

About Crocmedia
Crocmedia is an Australian sports content and entertainment business which was established in 2006. The group has six complementary business units encompassing the sport and entertainment industries:
• Branded Content (Crocmedia): Bespoke content tailored to audiences and brands for radio, television, podcasts and digital channels. Crocmedia’s talent and state of the art production infrastructure delivers efficiently produced content for brand partners of all sizes and their requirements to national and local audiences.
• Talent Management (Bravo): Boutique and exclusive representation of media professionals including presenters, broadcasters, journalists, sports professionals, entertainers and some of Australia’s biggest and most recognisable names in television and radio.
• Events (BallPark Entertainment): Exclusive access for individuals and corporate groups to the biggest and best events and experiences.
• Events and Activation (E&A): Brand activation advice and creative solutions for brands wanting to activate or leverage their sponsorships and media partnerships and reach consumers via non-traditional and social media platforms.
• Creative Services (Thread): Boutique creative agency with extensive experience in developing and managing brand communications across all touch points including print, television, digital, radio and social media.
• Racing Media Sales (Raceforce Media): Exclusive agency sales of RSN 927 Racing and Sport Radio and Radio TAB, providing brands with opportunities to engage with racing and sport audiences.

Syndication Activities
Radio syndication is the core of Crocmedia’s business.
Crocmedia produces 18 radio shows and over 130 hours of content per week. The group distributes content into its established radio broadcast footprint of 200 frequencies and 88 radio markets across metropolitan and regional Australia. Management estimates this footprint represents a potential audience base of approximately 20.5 million listeners and approximately 85% of the Australian population.

Crocmedia has radio broadcasting rights with Australia’s premier sporting codes:
• Australian Football League (AFL): Crocmedia has broadcast AFL matches since 2010. In 2016, Crocmedia secured a six-year broadcasting deal with the AFL for exclusive commercial regional radio master rights from 2017 to 2022. Crocmedia has exclusivity on supplying commercial regional broadcasts to all commercial radio stations around Australia other than stations owned by Southern Cross Austereo. In addition, Crocmedia has the right to broadcast two AFL games per weekend across all key metropolitan markets including Victoria, South Australia, Western Australia and NSW.
• Football Federation Australia (FFA) – Hyundai A-League: In 2017, Crocmedia secured the first master commercial FFA radio deal in Australia. Crocmedia is the master metropolitan and regional radio broadcast rights holder for Hyundai A-League and Westfield W-League games for five years commencing in the 2017/18 season. Crocmedia also has the option to broadcast Caltex Socceroos and Westfield Matilda’s home matches.

Financial Summary
Crocmedia delivered unaudited revenue of $20.6m and normalised EBITDA of $2.8m in FY17 and revenue of $25.7m and normalised EBITDA of $3.9m for the
trailing 12 months to October 2017.

Merger Rationale
The merger would create a leading sports content and entertainment business capable of delivering brand stories to national, metropolitan and regional audiences with unique and exclusive content via multiple platforms including owned and supplied radio, television, online, in-stadium, events and print.
Commenting on the merger, Craig Coleman, chairman of PNW (and executive chairman of shareholder Viburnum) said: “The proposed Merger is transformational for PNW which, if approved, would create a compelling platform for future growth.”

Proposed Management and Board
The following appointments will be made conditional and effective upon the merger:
Crocmedia’s co-founder and current CEO Craig Hutchison will be appointed to the PNW board as a director and will be appointed as the CEO and managing director of PNW.
Hutchison will receive $883,752 reviewed annually, including statutory superannuation contributions. His benefits include accommodation assistance.
Hutchison will be granted 2.1m performance rights under the 2018 PNW performance rights plan and will be entitled to receive a $61,000 bonus in respect of the CY18 year, subject to the PNW group achieving budgeted net profit before tax.
Chris Giannopoulos will be appointed to the PNW board as executive director.
Giannopoulos will receive $430,000 reviewed annually, including statutory superannuation contributions.
Giannopoulos is entitled to participate in PNW’s incentive plans, the terms and operations of which are at the discretion of the board. He will be granted 1.0m performance rights under the 2018 PNW performance rights plan and will be entitled to receive up to a $50,000 bonus in respect of the CY18 year, based on the net profit before tax of Bravo.

Craig Hutchinson & Chris Giannopoulos

Craig Coleman (chairman), Andrew Moffat (non-executive director) and Colm O’Brien (non-executive director) will remain on the PNW board.

Hutchison, CEO-elect of the combined group, said “We’ve enjoyed a wonderful relationship with Pacific Star Network as a supplier to SEN for a decade and have unbelievable admiration for the platform they’ve built. SEN is Australia’s only 24/7 sports station and together with the broader radio, publishing and digital business represents a tremendous growth opportunity. To join forces as one company with a single vision of a fully integrated sports content and entertainment business is incredibly exciting. We look forward to growing even further nationally and beyond and being the best place to connect fans to stars, and brands to fans.”

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