2CH sale an offer too good to refuse: Anatomy of the deal | radioinfo

2CH sale an offer too good to refuse: Anatomy of the deal

Friday 05 June, 2020

Music format expected to remain

The owners of 2CH have just about doubled their money in today's sale.

When Glenn Wheatley and his investors Oceania Capital Partners bought 2CH in 2016, they paid about $5.5 million.

Today they sold it to Pacific Star Network for $11.2 million, paid as $6.6 million upon completion next month, then $4.6 million over eight quarterly instalments.

Pacific Star Network will also issue 10,000,000 new PNW shares to EON’s shareholders at a deemed issue price of $0.225 per share. Pacific Star has also sold its Melbourne frequency to Ace Radio.

Despite rumours to the contrary, the music format is not expected to change.

While Pacific Star Network mostly operates the SEN sports stations, it also has a music station in Perth and it is believed it intends to operate 2CH as a music format for the forseeable future.

The Sydney market already has several stations that call football, as well as the 2KY sport and racing station, and soon the newly acquired 1539 frequency, which will carry SENTrack's harness and greyhound racing service, so there is little room for yet another sports station. The former Macquarie Media sports format was recently dumped in favour of music on 2UE.

2CH General Manager Cherie Romaro has told radioinfo:

"This will be a great thing for Classic Hits 2CH, to belong to a network. It will be an opportunity to grow. Being a solo station in the Sydney market is very difficult, but now we believe there is so much more we can achieve."

Piecing together the background of the deal, radioinfo has spoken to a number of sources who confirm the belief that the station will stay with its current format, which is doing reasonably well in the market in its niche.

Last survey 2CH went up by 0.3 to 3.8 share points, with the majority of its audience in the 65+ demographic, but with some surprising gains also in younger demographics (albiet off a low base). Workday listening was solid, as was evenings and weekends. The new breakfast format with Tim Webster was yet to bed in after the change of presenters from last year, so that timeslot dropped in survey two, which was the last survey to be held before the survey pause caused by COVID19.

Survey 8 last year was the station's best in recent times, which saw it achieve a 4.3% share. The team at 2CH are a small tight-knit group of seasoned professionals who do their job with maximum efficiency, little fuss and a positive attitude. Internally the station has been running well, although, like every radio business at the moment, times are tough as far as revenue goes.

2CH has not yet turned a profit for its owners. In it's 2019 Annual Report, when the company delisted from the stock exchange, it said: "EON 2CH was still loss making in FY19 but the underlying strength and direction of that business is continually improving... We are two years into the turnaround of Radio 2CH and some elements of that turnaround have been more difficult and slower than we originally planned. We believe the on-air positioning of the station is sounding excellent... results of these decisions are starting to show in improved ratings results, which we expect will in turn result in greater revenue."


Accounts in annual report show "A loss before tax contribution of $1.9 million from the operations of Radio 2CH Pty Ltd (2018: $2.3 million loss)."  The station's 2019 revenue was $2.4 million, up from $1.9 million in 2018.

Pacific Star Network is a listed company, so is restricted about what it can say publicly about the deal. All the official statements have been issued to the stock exchange. Oceania Capital and Ace Radio are private companies.

How did the deal play out? This is what we have pieced together from our sources.

The Pacific Star Network has been in expansionary mode for a while, trying to put together enough frequencies around the country to make it an attractive buy to national agencies. It has been successful in that aim so far, with its most recent acquisition being in Bunbury WA, but the important Sydney market has eluded it until now. It is also in the process of finalising a deal with the operators of the Italian narrowcast station Rete Italia, to acquire some of its frequencies.

Financing is always an issue when you're expanding, and Pacific Star ran into interference in March when most sports were put on hold due to the Corona virus pandemic. That forced the company to go back to its financiers and renegotiate its loans, and to initiate a trading halt while it did so. SCA also undertook a similar trading halt when COVID hit, for the same reason. At that time nobody knew how long the crisis would last and how long it would be  before sporting events could resume.

Pacific Star's trading halt ended at the beginning of this week. During its financial negotiations Pacific Star identified the ability to increase its debt funding by $13.5 million for the right opportunity. It was also able to successfully get the Jobkeeper program. With the resumption of sporting events much sooner than anyone expected, the company thinks its prospects for returning to normal trading are good, although officially it cannot give clear guidance to the market because of all the unknowns at this time. The company expects revenue to drop about 35% in this half, but still expects to break even. As long as it trades successfully it should be able to continue servicing its highly geared debt.

Ace Radio is a company that has never had ambitions to grow outside of Victoria. Owners Rowley and Judy Patterson consider it a family business and want the stations to be close to the rural communities where they are located. The radio network is part of the family's larger pastoral interests. So Ace Radio has not really been actively looking for growth, except in one area, Melbourne.

Ace Radio's headquarters is in Melbourne, but it has never had a station there, so when the opportunity to buy Pacific Star's Melbourne frequency, the former 3MP, came up the company would have been immediately interested, if the price was right. SEN and Ace are based in Melbourne. The possibility of a deal probably came up from chance conversations over time between key people in both companies, but timing is everything... and the timing of this deal now seems to have worked for both parties. Ace has offered $4.5 million for the 1377 AM frequency and its associated DAB+ bandwidth, in a deal that is set to be finalised by 1 July, a significnat date for tax purposes and asset write offs.

Meanwhile, 2CH owner EON was just bedding in its business strategy for the 2020 year when COVID hit. With the station hitting its stride in programming, the next thing was to grow revenue. But revenue growth for a stand-alone station in a big market will always be difficult, so EON knew it had a big job ahead of it this year, even before COVID. EON's headquarters is on Queensland's Sunshine Coast (see our recent story on those stations), but owner Glenn Wheatley lives in Melbourne.

Perhaps a chance meeting between Wheatley and Craig Hutchison somewhere in Melbourne began a discussion that has now bourne fruit, allowing Pacific Star to get a beach-head in Sydney for its SEN and Croc Media production operations, and to establish a sales base in Australia's other biggest advertising market outside of Melbourne. It has also allowed EON to realise a good profit from its original investment in 2CH. While the Sunshine Coast stations are believed to be making good profits, 2CH has not been cash flow positive for EON.

Like the alignment of heavenly bodies for the lunar eclipse this weekend, known as a 'strawberry moon,' it seems that the stars have also aligned for three radio companies to make good deals.


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9 June 2020 - 12:45pm
Just so we don't forget: Under the guidance of the late Bruce Rogerson 2CH attained an 11.9% share in Sydney in the mid 1970s with the Good-Beautiful Music format.
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