Southern Cross Media confirmed on Monday that it is "reviewing a number of strategic options", including a merger and a change of network affiliations, in response to BusinessDay reports last week.
While not referring directly to its negotiations with Nine Entertainment, Southern Cross confirmed that, with its affiliation arrangement with the embattled Ten network expiring midyear, it is exploring its options.
"The board has not, at this stage, formed a view as to any preferred option," Southern Cross said in a statement.
The company is also in talks with Nine about a merger that would act as a reverse listing for Nine.
While Southern Cross's largest shareholder, Macquarie Group, has been driving the merger proposal, its second-largest investor, Allan Gray, said it was not opposed to a deal as long as the price was right.
"It makes strategic sense if it is done at the right price," said Allan Gray's Simon Marais.
Southern Cross noted that legislation prohibits any merger with metropolitan TV stations, Seven, Nine and Ten.
The news further boosted the Southern Cross share price, which has jumped nearly 40 per cent in a few weeks on takeover speculation. The stock closed 5¢ higher at $1.575 on Monday, its highest close since May 2011.
If Communications Minister Stephen Conroy carries through his promise to lift rules preventing a commercial TV broadcaster from reaching more than 75 per cent of the Australian population, it is expected to trigger mergers between the metro broadcasters and their regional affiliates.
The lapse of Nine's affiliate deal with its regional partner WIN Television last year and the expiry of Ten's deal with Southern Cross this June, raises the possibility of the networks swapping partners ahead of any potential mergers.
But there are obstacles to a scenario that would see Nine dump WIN in favour of Southern Cross and use the merger as a back-door listing on to the share market.
One is whether Senator Conroy gets legislation passed. Then there is the issue of Nine and Southern Cross agreeing to a deal.
Most importantly, Nine will still need a commercial relationship with WIN to provide content to the Channel Nine stations in Adelaide and Perth, which WIN owns.
Losing Nine as an affiliate will be costly for WIN. The regional TV provider would be forced to deal with Ten, which is rating at half the level of Nine in regional Australia.
One analyst said that it raised the possibility that the whole exercise was "theatre" designed to extract better deals from the current partners of Nine and Southern Cross.