So will Kerry Stokes take a controlling 50%-plus stake in the Seven Network Ltd at a time when the company has lost millions on controversial stockmarket investments, and earnings are under increasing pressure from the slowing economy?
The company plans to seek approval for a buyback of close to 20% of the existing capital of 206 million shares. That’s 40 million in total and comes after Seven bought back 21.15 million shares in the year to June.
If it happens he could end up with as much as 56% of Seven.
He indicated yesterday at the results briefing that his private company would not disclose its attitude to the buyback. But he said doubted his private company would be a seller.
Mr Stokes has not disclosed his attitude to the buyback, but the fact it happened, and he owns 45% of Seven, indicates he’s not opposed.
The fact that he didn’t say yesterday he would sell into the buyback, when and if it happens, is another sign that the Seven chairman won’t sell any of his holding back to the company.
And why should it (apart from good governance reasons) as shareholders will be taking a lower price which cuts the cost of his acquisition in an on market offer and also removes the need to pay a premium for control.
Seven is effectively financing his creeping grab for control.
The size of the issue and its continuation in a revamped form also indicates the determination of Mr Stokes and fellow Seven directors not to be in a position where the shares might be hammered lower by short sellers or other traders if there’s a sign of trading or strategic weakness in the coming year.
The company remains under pressure over $715 million of stockmarket investments (early 2008 prices) that have bled value, and with a downturn in TV ad revenue and earnings expected in the coming year.
The company reckons those stockmarket investments were just in a profit as of Monday night’s market close, but that was unexplained yesterday.
It has written down the value of its investments in technology company, Engin and in Perth-based contractors, GRD, but not in its 22% stake in West Australian Newspapers, which reports today. It also has 4.82% of Consolidated Media Holdings which has a 25% stake in PBL Media.
The company yesterday reported lower earnings from its TV business (which is in the half-owned Seven Media Group with private equity group, KKR) but a standout result for the joint venture’s magazines business, Pacific, which scored solid gains.
But the benchmark TV business suffered a loss of second half earnings and profit margins as ad revenues turned down and the Nine Network made ratings gains at Seven’s expense.
The company’s gross margin in TV fell from 33% in the first half of the year to 28% for the full year.
Seven shares rose 51 cents in early trading to $8.65 as investors liked the buyback, which was the whole aim of the exercise, just as it was a year ago; and just as the Ten Network did five weeks ago to put a line under its collapsing share price.
The shares settled back to close up 25 cents at $8.39.
The new buyback will see the company buying back up to 40 million shares if approval comes at a special shareholders meeting next month at which Kerry Stokes won’t vote.
Mr Stokes’ holding in Seven Network has risen from around 42% to about 45% thanks to the 2008 buyback and if Seven buys all the shares, it will move to around 56%.
Even if Seven only buys half the 40 million shares, Mr Stokes will be very close to a controlling 50.01% stake, all without paying a premium for control.
The net $41.9 million in significant losses came mainly from the written down value of its holdings in technology group Engin and in the contractor, GRD.
There was no loss taken against the 20% stake in West Australian Newspapers where Seven is trying to get board representation. That’s despite paying an average price closer to$ 11 a share than the current WAN price of $8.96 last night (up 28 cents).
Seven reported a 2% fall in bottom line annual profit but claimed its underlying earnings are strong with core television revenue outpacing overall market growth.
Net profit before significant items was $170.653 million, down 2.2%.
But it said Seven Media Group’s annual earnings before interest, tax, depreciation and amortisation (EBITDA) was $398 million, up five per cent from $380 million.
Seven Network’s share of the joint venture profit in Seven Media Group was $54 million.
The magazine business Pacific Magazines, which holds titles like New Idea and Better Homes and Gardens, posted EBITDA of $61 million and an EBIT of $46 million, up from around $39 million in 2007.
Seven declared a final dividend of 17 cents, taking the total for the year to 34 cents, up from 29 cents in the fiscal 2007 year. That higher dividend will help Mr Stokes enjoy life a bit more.
Seven Network Ltd might be the listed company, but the key business is the Seven Media Group where control is shared with the US private equity group, KKR.
And, judging by the latest, limited figures from Seven Network Ltd, the media business is doing it much tougher than the market though.
It lifted EBITDA (earnings before interest tax, depreciation and amortisation) by 5% to $398 million, from $380 million a year ago.
At the interim Seven said: "Seven Media Group delivered a strong performance across the six months to December, with earnings before interest, taxation, depreciation and amortisation (EBITDA) of $239 million – up 10 per cent on the prior period’s $218 million."
That would indicate a slowdown in the second half as ad revenue growth in the TV business fell away sharply.
