Around five months ago, Kerry Stokes firmly put to bed persistent market talk that Seven West Media was talking to Fairfax or Nine or News Corp.
At the company’s annual meeting last November, Mr Stokes was firm that Seven West Media is not in negotiations with News Corp or Fairfax.
He told shareholders the company, has found it difficult to “find alignments” with other organisations in a way that produces value. Asked a number of times about future mergers and acquisitions Stokes was strongly negative about the possibilities of Seven West joining with News or Fairfax.
“In regard to News, we work very closely with News in lots of different areas and we find them first class partners in the areas we do co-operate in. We’ve had no discussion with them or with Fairfax on any merger or transaction,” said Stokes.”
So the speculation went quiet in the wake of Stokes’ comments. Since then Seven West has confronted its brutal truth, that it was going out backwards by boosting cost cuts to $125 million by June 2019, suspended dividends, saving more than $60 million a year and started slashing job numbers.
But it has also lost its tennis broadcast deal, forcing it into the panicky alignment with Foxtel in securing the rights to the cricket, adding more than $80 million a year to its cost base (or around a net $40 million after accounting for the costs of the tennis deal). So perhaps there’s some desperation there about the future, enough to think marriage?
Seven West shares jumped last Friday by 12.6% to 58 cents in the wake of the Foxtel cricket deal, but yesterday ended at a low of 49.5 cents, which is under the 52 cents they were trading at when the Foxtel deal was confirmed a week ago tomorrow.
In other words, investors reckon Seven West will lose money and earn lower profits (or no profits?) as a result of the the cricket deal.
So it came as something of a surprise to read in yesterday’s edition of The Australian that News Corp reckons Seven and Fairfax are back talking about a “$2.3 billion merger”.
Now that is odd peculiar because the Fairfax and Seven West share prices have not shown any of the usual characteristics of an Australian media deal – there’s been no evidence of insider knowledge leaking out into the market – the share prices haven’t risen ahead of the news of a possible deal getting out.
Seven’s share price has one backwards in the past week (down 14% in three days of trading from last Friday), while Fairfax’s price rose 1.3% on Wednesday to reach 65.5 cents. Fairfax shares are down over the past five days, and off nearly 10% in the past month.
Seven West shares are down more than 10% over the past month. That is not the normal stockmarket behaviour for Australian media company shares involved in merger discussions.
Seven West shares went nowhere yesterday at 49.5 cents, until a late spurt saw then rise to 51 cents. Fairfax shares ran up more than 6% to 69 cents as punters clambered on board
But they ignored two major sticking points to any deal. The first is the 50% of the Stan streaming video business Fairfax owns, with Nine Entertainment owning the other. Fairfax and Nine have invested an estimated $150 million or more in Stan to make it number two and driven out the Foxtel/Seven West Media Presto offering.
Now its Netflix, then Stan (which has more than 930,000 subscribers and is vastly larger than Foxtel Player). Nine would not want Seven owning the other half of Stan, after all it has tried and failed.
The other sticking point is that Fairfax is still deeply involved in the dying newspaper business, which is the millstone around Seven West’s share price and the reason why it still has more than $700 million in debt. Remember Seven West Media was worth $4.1 billion when Seven merged with West Australian newspapers back in 2011. And its market value yesterday was $776 million.
That was a value destroying deal as was Fairfax’s Rural Press acquisition $2.8 billion. The merged value of Fairfax then was $9 billion. Even if you add back the value of Domain ($1.77 billion) to Fairfax’s higher $1.58 billion, you get a combined figure of around $3.3 billion, which is a long way from that $9 billion valuation.
