West Australian Newspapers buying Seven Media for $2 billion

By Michael Smith

SYDNEY (Reuters) – Australian media tycoon Kerry Stokes is spearheading the creation of the country’s biggest media company after agreeing to combine his Seven Media Group’s television and magazines empire with West Australian Newspapers'(WAN) (WAN.AX: Quote, Profile, Research) regional newspaper business.

Perth-based WAN will pay $2 billion to buy Seven Media Group, whose assets include Australia’s highest-rating television network, from Stokes’ Seven Group Holdings (SVW.AX: Quote, Profile, Research) and private equity firm Kohlberg Kravis Roberts (KKR.N: Quote, Profile, Research) under the deal.

WAN plans to raise $1.5 billion in new capital to fund the deal — the latest in a string of consolidation moves in the Australian media sector, including a planned $5 billion float of private equity firm CVC’s (CVC.UL: Quote, Profile, Research) rival television network Nine Entertainment later this year.

Stokes, 70, a former Perth television antenna technician who is one of the country’s most powerful businessmen and the existing chairman of WAN’s board, is seen as the driving force behind the deal. He will remain as chairman of the new group.

“He’s been very successful. A combined traditional TV and digital media will probably be very competitive,” said Tom Millner, Chief Executive at BKI Investment Co, one of WAN’s top 10 investment manager shareholders.

“It’ll have significant scale, and the cross-sell opportunities will be pretty significant.”

Seven Group shares rose almost 4 percent to a record high of A$9.44 after the deal was announced. WAN shares remained in a trading halt having closed on Friday at A$6.34, while Australia’s main index (.AXJO: Quote, Profile, Research) slipped 0.9 percent.

WAN, which wants to diversify from its newspaper-focused business into digital media, will take on A$2.1 billion of Seven’s debt under the deal which is being funded by raising new capital, issuing preference shares.

KKR will hold a 12.6 percent stake in the new combined group, down from 45 percent held in Seven Media currently, while Stokes’ Seven Group Holdings will hold 29.6 percent in the combined entity versus 45 percent in Seven Media.

The rest of Seven Media is owned by mezzanine investors and its management.

WAN said it would issue A$1.15 million worth of its shares to Seven Group Holdings at A$5.99 a share, at 5.5 percent discount, as well as A$250 million in convertible preference shares to fund the deal. It would also repay a A$650 million loan Seven Media owes to Seven Group Holdings. The total outlay, including the A$2.1 billion of debt WAN will take on, is A$4.1 billion.

WAN would also conduct a placement of A$461 million of its shares to KKR and the mezzanine investors, raise an additional $653 million through a non-renouncable rights offer, and raise A$40 million in new WAN shares. That money would be used to pay down some debt and transaction costs.


Valuations on Australian free-to-air TV businesses have jumped following a raid on broadcaster Ten Network (TEN.AX: Quote, Profile, Research) last year by billionaire James Packer and a turn in the advertising market.

Media consolidation is gathering pace in Australia. Australian broadcaster Southern Cross media (SXL.AX: Quote, Profile, Research) made a A$741 million bid for radio group Austereo (AEO.AX: Quote, Profile, Research) in January.

KKR bought a 50 percent stake in Seven for A$3.2 billion in 2006 at the peak of the buyout boom and has since trimmed its stake to 45 percent following a period of losses that forced Stokes to write down his share holding in Seven Media to zero.

Stokes hinted the new combined group had later ambitions for growth outside regional Australia.

“It might in the future look a lot bigger than regional Australia,” he told analysts on a conference call.

UBS (UBSN.VX: Quote, Profile, Research) and JPMorgan (JPM.N: Quote, Profile, Research) advised Seven on the deal and O’Sullivan Partners was financial adviser to WAN. UBS (UBSN.VX: Quote, Profile, Research) and JPMorgan are joint lead managers on the share offer.

Seven owns one of Australia’s big three commercial television networks and Pacific Magazines whose titles include Better Homes and Gardens, and online sites.

Stokes last year merged his holding companies to move further out of media through a merger of heavy equity firm WesTrac and Seven. He sold more than half his media interests to KKR in 2006.

(Additional reporting by Sonali Paul in MELBOURNE; Editing by Balazs Koranyi and Dhara Ranasinghe)