Kerry Stokes’ failing Seven can still get a media deal done

Kerry Stokes’ financially strapped Seven West Media has bought into the takeover battle for TV and radio company Southern Cross Austereo (SCA) by grabbing a 19.9% stake in the bidder, radio network owner ARN, in which the Murdoch family’s News Corp already controls a 13.2% stake.

The biggest shareholder in ARN ahead of the moguls is investment managers Allan Grey, which own 20.3%. ARN acquiring SCA would further concentrate Australia’s overly concentrated media market — especially given who’s on the share register.

Seven West Media’s deal, revealed on Monday morning, came five days after Seven held its annual meeting in Sydney, where the planned raid on ARN was not mentioned. It should have been announced to the non-Stokes majority of shareholders, seeing as the reported $60 million cost is around 15% of Seven West’s shrinking sharemarket value — especially since Seven looks to have paid a big premium of $1.10 a share compared with ARN’s price last Friday of 84 cents.

Stokes will reportedly support the ARN bid for Southern Cross and its radio networks and floundering regional TV network. It will also increase his links with the Murdochs — Stokes bought News Corp’s Perth print media assets a few years ago, giving him a near monopoly in Perth media. The two have also co-operated and divided up the sports media rights for the AFL and cricket and have cooperated closely on issues such as getting government controls in place on streaming video businesses such as Netflix and Prime, while busy expanding their own, weaker and less-watched offerings.

The secrecy about the ARN raid was probably a good thing because Seven, which has a long history of disgruntled shareholders and hasn’t paid a dividend for five years, came close to getting a strike against its remuneration report from shareholders at its AGM for a second year in a row — when 25% or more of the shares at the meeting voted against the remuneration report (as they did at Qantas a week earlier).

Seven said just over 21% of the shares voted against the report at Thursday’s annual meeting. More than 29% voted against the report at the 2022 annual meeting, meaning Seven was spared a messy spill of directors after a second strike last Thursday.

For a company tightly controlled by the Stokes’ interests, that was a powerful protest. It is really the only way for non-Stokes shareholders to show their feelings, though you have to wonder why anyone remains on the register given the destruction in value over the past decade or more.

Seven shares traded at 26 cents on Monday, down from Friday’s 27 cents and equal to the lowest they have been (outside the pandemic in 2020) since the company was created more than a decade ago with a claimed value of $4.1 billion. Friday’s close valued the company at $419 million. Seven West had net $249 million of debt ($306 million gross) on June 30. So in effect, the market reckons Seven’s assets had a value of $170 million. Using gross debt, the value is around $113 million. That includes the $120 million Seven West spent on the takeover of Prime Media in late 2021 (which investors now do not ascribe any value to).

The raid on ARN will cost Seven around $60 million — more than the $57.4 million in cash it had on its balance sheet on June 30, so it will have to use debt to finance the raid, which will take net debt past the $300 million mark. Last week Seven revealed a new debt package with its banks — four years instead of three and $525 million instead of $600 million, which sounds like a compromise forced on Seven by the banks, reducing their exposure by 12.5% while getting an extra year’s interest (or the promise of it) from Seven.

Seven’s major asset is more than $700 million of intangibles — that’s goodwill etc of Seven’s brand (and that of the West Australian assets) and TV licences. But it also had $3.1 billion in losses at June 30 from impairments and other write-downs over the year. Seven will never pay tax with that amount of losses, but the market is betting that Seven won’t be around to use them — unless Stokes takes it private.

Stokes and the directors of Seven Group Holdings, his main listed company, wrote down the value of its holding in Seven West at June 30 (when the shares were 38 cents) by nearly $76 million. That was after an $83.4 million write-down in 2021-22. If the shares remain at current levels of around 27 cents, there will have to be a further impairment this financial year.

To Seven Group, 40% of Seven West is an increasingly worthless asset — but it seems it does have its uses when a mate needs help in pushing through an anti-competitive media control deal…