ARN Media's bid for competitor SCA has taken a sharp turn.
Private equity firm Anchorage Capital Partners, which was part of ARN's consortium bid, has walked away from the deal.
SCA said it was "frustrating" the consortium had withdrawn its proposal now when any material concerns should have been identified much earlier.
It shares fell more than 7% to $0.875 when the stock exchange opened today.
ARN and Anchorage Capital Partners first made an offer in October last year, valuing SCA at $330 million, made up in part cash and part shares.
Under the complicated proposal, the assets and liabilities of ARN and SCA would have been allocated between ARN NewCo and a privately held vehicle by the private equity firm.
ARN today confirmed the departure of Anchorage, which cited a "continued decline" in the trading performance of regional TV.
However, ARN was still considering the acquisition of SCA radio assets.
"ARN continues to consider the acquisition of certain SCA radio assets and the combination of ARN and SCA digital audio assets as a unique opportunity to unlock both immediate and long-term value creation," ARN said in a statement to the ASX.
"ARN and SCA shareholders were both expected to benefit from the creation of a focused metro radio network of 10 stations across Sydney, Melbourne, Brisbane, Adelaide and Perth, anchored by the KIIS and Triple M brands in each location, an expanded and growing regional radio network, and a scaled, fast-growing digital audio platform with enhanced profitability and cash flow potential."
Post-transaction, ARN was expected to have revenue of more than $440 million.
SCA said the complexity of ARN's alternative proposal was "materially greater" than the original but it would consider the offer.
"The potential for SCA shareholders to receive cash consideration (with the potential to benefit from a franked dividend) and reduce their exposure to regional television were key benefits of the previous proposal which would not be achieved by ARN’s alternative proposal," SCA told the ASX.
"Under ARN’s alternative proposal, SCA shareholders would be left holding an interest in two competing media businesses, one of which would have a market capitalisation of ~$100 million , and as such potentially be sub-scale and less liquid compared to their existing investment in SCA.
"ARN’s alternative proposal would reduce SCA shareholders’ exposure to digital audio from 100% in SCA today, to ~36%."
In a trading update today, ARN said year-to-date total advertising revenues finished 1% ahead of the same period last year, delivering a consistent metro radio share, improved digital audio share, with revenues +40%, and regional revenues in-line with last year.
May and June total bookings are pacing in-line with the prior comparative period.
ARN said it was on track to deliver about $6.5 million of $10 million in a two year cost out program.
"We grew total revenue to the end of April, have accelerated our digital audio revenues, regional markets continue to perform strongly, and we are on track to deliver the permanent cost-out reduction target we set ourselves for 2024," said ARN chair Hamish McLennan.
"I firmly believe ARN is the most well-run audio business in Australia, and we are in a position of strength to progress the ARN Indicative Proposal for the benefit of both ARN and SCA shareholders.
"It would deliver a business of the scale necessary to compete against global platforms.
"Market restructuring has been talked about for a long time, but the fact remains that today’s regulatory environment is not reflective of the market in which Australian media operates and urgently needs government action."
SCA reported revenue down 2.9% to $252.6 million for the half year to December and net profit after tax at $4.4 million, a drop of 71.1%.
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