Lachlan Murdoch has moved to increase his Australian media interests by taking full control of DMG Radio Australia in a deal worth more than $100 million.
Late on Sunday, Mr Murdoch’s private investment company, Illyria, confirmed an agreement to buy the 50 per cent of DMG Radio Australia that it did not already own from the London-based Daily Mail and General Trust.
It is believed Illyria has paid $100 million (£66 million) in cash to increase its stake. Daily Mail and General Trust will also receive a further sum equivalent to 50 per cent of DMG’s final dividend for the financial year ending September 30, 2012.
The deal will give Mr Murdoch full control of the company behind the Nova and Smooth FM brands.
It will also re-ignite speculation about the media heir’s future.
Rupert Murdoch’s eldest son has grown his media footprint in Australia since 2005, when he resigned as deputy chief operating officer at News Corporation.
Speculation that he will return to full-time executive duties at News Corp increased after his brother and heir apparent at News, James Murdoch, was embroiled in a phone-hacking scandal at the company’s UK newspaper operations.
But the purchase of the remaining stake in DMG Radio suggests Illyria’s portfolio of local media investments remains Lachlan’s top priority.
The 40-year-old father of three, who lives in Sydney’s eastern suburbs, still serves as a News Corp director and is chairman of free-to-air broadcaster Ten Network.
Illyria invested $128 million for an 8.9 per cent stake in Ten in November 2010. Since then, shares in Ten have lost more than 70 per cent.
The broadcaster has struggled for decent ratings at a time when the advertising market has made it difficult for all media companies to grow earnings. It parted ways with its programming head of the past 15 years, David Mott, last week.
However, Mr Murdoch made a $6.5 million profit in June when he sold Illyria’s 9 per cent stake in regional television company Prime Media Group for $22 million.
DMG Radio can also be regarded as one of Mr Murdoch’s more successful investments. The business has doubled its earnings before interest, tax, depreciation and amortisation since Illyria became a shareholder in 2009. Mr Murdoch and chief executive Cathy O’Connor have cut costs and introduced more ads on Nova to boost revenue.
The business had an enterprise value of about $165 million when Illyria became an investor, compared with market estimates of $285 million now.
“We are pleased to move to 100 per cent ownership of DMG Radio Australia,” Mr Murdoch said in a statement.
“When we acquired our 50 per cent interest in DMGRA in November 2009 we set out to create one of Australia’s leading media companies. Over the past three years, working alongside DMGRA’s wonderful staff, we have successfully implemented our growth strategy.”
Mr Murdoch has installed a new management team under Ms O’Connor.
Besides increasing advertising on Nova they have closed down the baby boomer-oriented station Vega and launched easy listening station Smooth FM.
Recent ratings surveys by Nielsen show Smooth FM achieved close to 5 per cent cumulative audience share in both Sydney and Melbourne in August.
“We have great confidence in the continuing potential of radio, great confidence in the management team we have built under Cathy O’Connor, and look forward to further growing DMGRA in the coming years,” Mr Murdoch said.
Analysts have postulated that Mr Murdoch could soon look to consolidate his Australian media assets with those of his family.
A potential Ten-DMG tie-up makes strategic sense as it would create a national network of FM radio and television stations which would be attractive to advertisers targeting the youth audience.
Citi analyst Justin Diddams estimated such a deal, offering the combined group substantial cross-promotional benefits, could be valued up to $250 million.
The next step would be for Illyria’s media assets to be combined with News Corp’s Australian assets.
News Corp is in the process of separating its fast-growing entertainment assets, including its US-based film studios and cable television stations, from the newspapers on which the company was founded.
The move is designed to insulate the more valuable entertainment assets from potential regulatory fallout from the hacking scandal, and to unlock value for institutional shareholders.
But under the demerger, all the Australian assets, including stakes in Foxtel and Fox Sports Australia, and its suite newspapers, will be housed in the publishing-based entity.
CLSA analyst Digby Gilmour said in February News Corp might consider buying Ten to further diversify its Australian assets away from print.
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