ONE of the final steps in the deconstruction of Macquarie Group's collection of satellite funds unfolded yesterday. Southern Cross Media Group, the old Macquarie Media Group, announced that it will soon complete its planned management internalisation after the refinancing of a $375 million domestic debt facility.
While it may take a little time, the removal of links to Macquarie should significantly improve Southern Cross' investor appeal. Together with a $294 million recapitalisation late last year, the internalisation positions Southern Cross (for the first time in its five-year history) as an appropriately geared media company with a conventional corporate structure and run by a hardened media executive rather than an investment banker.
While some legacy issues remain in Southern Cross' American Consolidated Media subsidiary (which owns community newspapers in the US), these are quarantined. The most likely outcome is that ACM will soon fall into the hands of its bankers with minimal impact on the broader group.
For many institutional investors, management internalisation means that Southern Cross will now warrant serious consideration for the first time. When they get around to running the ruler over the business, they'll find one of the better-priced opportunities in a sector that's generally fairly valued.
Alex Pollak from Macquarie Research Equities values Southern Cross' network of 15 regional free-to-air television stations and 68 radio stations at $2.56 a share. This price target doesn't look aggressive given it assumes that the regional radio business is worth seven times 2011 EBITDA and the television business nine times 2011 EBITDA - lower than trading multiples of comparable businesses in both the radio and television sectors. Southern Cross shares closed up 3.9 per cent at $2.13 yesterday.
Ankle bracelets out!
PLENTY of investment bankers are confronting deep disappointment this week following the selection of joint lead managers for the $4 billion Queensland Rail float process. Curiously, the grumpiest bankers work for the firms selected for the job (Credit Suisse, Merrill Lynch, Goldman Sachs JBWere, UBS and RBS) rather than those who missed out.
With public sector clients renowned for being hard taskmasters but miserly on fees, one equity capital markets operative yesterday wept: ''There are five lead managers, no fees, and political pressures mean the privatisation possibly won't even happen. We're going to spend all our time camped in Brisbane squabbling with the other advisers.''
However, market scuttlebutt suggests that a few issues need to be addressed before lead manager mandate agreements are signed. One sticking point could be Queensland government efforts to formalise the amount of time that each member of the team spends in Brisbane working on the project. How will the senior bankers feel about being held to promises of time allocation made during the beauty parade process? And how will the Queensland government monitor them? Ankle bracelets that set off an alarm on approach to Brisbane airport may yet be required.
As an aside, Macquarie Group and Deutsche Bank were notable absentees from the lead manager panel. Presumably it's a coincidence that these were the firms that led the BrisConnections float? Still, with around 14 coal companies now looking for advice on the QR process, there should be plenty of lucrative consolation prizes available.
Power sale for Griffin
DESPITE the January collapse of Griffin Coal, there are signs of life on the edges of Ric Stowe's unravelling empire.
The Western Australian Environmental Protection Authority recently recommended approval of a proposed expansion of the Bluewaters coal-fired power station near Collie as it is unlikely to compromise the surrounding environment.
Bluewaters is among $1.5 billion worth of power generation assets which, while not themselves in administration, will go up for sale to help clear the debts of the parent company Griffin Coal. The latest word from the administrator is that sale advisers will be appointed soon.
The big squeeze
REPORTS that Transurban is looking to tap local markets for a bond issue to refinance bank debt is notable mostly for what it doesn't say about the defrosting of credit markets. Apparently the toll-road operator has appointed CBA and Westpac to lead an offer of $200 million of four-year Australian dollar bonds.
It's the tenor of the deal that's interesting. In a normal market, four years is at the short end for a bond deal and Transurban's last bond issue in Australia was five-year notes issued in 2006.
If a company can only get a four-year term for bonds secured against Melbourne's Citylink project, there's little hope for non-infrastructure businesses on the hunt for longer term debt.
Mystery solved
DEDICATED bank-watchers have been pondering the ambitions of Wells Fargo since January when the US-banking giant registered an Australian subsidiary.
The move appears to be administrative, with Wells Fargo having no plans to enter our retail banking sector.
The registration of an Australian entity is a housekeeping measure following Wells Fargo's 2008 acquisition of the distressed Wachovia, which had been a small player in the Australian commercial lending market for some years.
dsymons@fairfaxmedia.com.au
