The proposed purchase by West Australian Newspaper Holdings of Seven Media Group in a $4.1 billion deal will expand Kerry Stokes’ hold on the Australian media (and especially in Western Australia) and give him the capacity to do more deals.
It is a very large related party transaction: Mr Stokes controls WAN with a 24.3% stake and Seven Media with a 66% stake via Seven Group Holdings.
Seven Group in turn has a 45% stake in Seven Media, along with US buyout group, KKR and the management of Seven Media with a 6% stake and other investors the hold the rest.
Less than a year after he backed Westrac into Seven Network and created Seven Group Holdings, Mr Stokes now proposes to break up that combination and sell his TV and magazine businesses into his newspaper company.
The bottom line for that is that he will control the media business, without a partner in KKR, which is given an exit line from the Seven deal via the shareholding in WAN
Seven Group will revert to being basically Westrac, with some media and telephone interests, plus a big pile of investments in listed companies. The shares in WAN will be sold, but Seven Group will get back an even bigger stake in WAN.
The deal, if approved will create Australia’s largest television and newspaper company and more than trebles the size of WAN.
There are no real synergies, just $15 million in a deal with a total value of $4.1 billion, which is nothing. In fact the transaction will cost $45 million in fees and other charges, so whatever efficiencies will be more than offset for the next three years.
Kerry Stokes will see his shareholding in WAN rise to around 29%; KKR will have around 12.6%. Mr Stokes will also keep his 66% stake in Seven Group Holdings, which will control the Westrac Caterpillar business in WA, NSW and North Eastern China. Seven Group Holdings will hang on to the 22% of Consolidated Media Holdings, which is 54% owned by James Packer.
Cons Media has 25% of Foxtel, the Pay TV operator and 50% of Premier Media Group, which controls Fox Sports and other pay TV channels.
WAN said it would acquire Seven Media for an enterprise value of $4.1 billion in a deal which involves issuing shares, repaying a loan and taking on debt.
The deal was confirmed along with the release of WAN’s first-half results yesterday (and those from Seven Group Holdings). WAN showed profit rose 1.3% in the six months to December.
WAN shares also went into a trading halt ahead of the announcement about a takeover and an associated capital raising.
The new company would be called Seven West Media and would remain listed on the ASX as the largest Australian based listed media company.
WAN’s existing board membership would remain and Seven Media’s chief executive David Leckie would become Seven West’s CEO.
Seven West would take in all of WAN, including The West Australian, the state’s biggest newspaper, and radio licences, all of Seven Network and all of Pacific Magazines.
Additionally, Seven West would own 49.9% of Community Newspaper Group, 50% of Yahoo!7, and 33% of Sky News.
WAN would buy Seven Media from Seven Group with $1.08 billion worth of its own shares at $5.99 each, $250 million of convertible preference shares, $650 million repayment of a Seven Media loan owed to Seven Group and $2.104 billion of assumed external net debt.
That debt will turn WAN into a highly geared company at a time when high debt is still feared by many investors after the failures during the GFC.
WAN will raise $461 million through a placement of shares to KKR, $653 million from an entitlement offer of new shares and a further $40 million from a general public offer of shares. That’s a total of $1.154 billion.
The proceeds from the equity raising will be used to repay $450 million in debt, repay the Seven Group loan and pay transaction costs of $45 million, with the balance to be used for general corporate purposes.
The takeover is subject to Australian Competition and Consumer Commission approval. Shareholders will vote on the deal on April 11. An explanatory document will be available by March 11.
As part of the transaction, Seven Group will sell its interest in WAN and not take up its entitlement under WAN’s entitlement offer. But it will get shares valued at $1.08 billion under the deal.
WAN’s net profit rose to $50.11 million for the six months to December 31 compared with $49.49 million in the prior corresponding period.
Revenue rose 2.1% to $209.44 million. The company has declared an interim dividend of 19c per share fully franked.
Seven Group Holdings revealed its first half year profit yesterday.
Seven Group reported a profit before taxation of $164.9 million and a net profit after taxation of $127.6 million for the first half of the financial year.
The company said, "The result was underpinned by total revenue (including share of results from equity accounted investees and other income) of $1,645.3 million, with earnings before interest, taxation, depreciation and amortisation (EBITDA) of $220.0 million and earnings befo
