How to explode a multi-line string?

You need to change '\n' to "\n".

From PHP.net:

If the string is enclosed in double-quotes ("), PHP will interpret more escape sequences for special characters:

\n linefeed (LF or 0x0A (10) in ASCII)
More...

Read manual

Note: Unlike the double-quoted and heredoc syntaxes, variables and escape sequences for special characters will not be expanded when they occur in single quoted strings.

So use "\n" instead of '\n'

Also, instead of \n you can use PHP_EOL constant.
In the Windows "\r\n" can be used as end of line, for this case you can make double replacement:
$matches=explode("\n", str_replace("\r","\n",$matches));