Who would have thought that Kerry Stokes would be the person to rebuild the great Australian media empire in the shape of the “old” John Fairfax (pre the mad bid from young Warwick Fairfax in the late 1980s), but that’s effectively what he is doing.
Fairfax used to control the Sydney station of the Seven Network and the Nine station in Brisbane. Now the most diversified of the mainstream media empires is being recreated, at least in part.
That Stokes is “only” using a net $132 million in cash to recreate the media empire of the Seven Network, magazines and a strong newspaper, is a testament to the cleverness of the deal, and two pressing needs.
One is to house a $400 million deferred tax liability in the Seven Media Group until it can be sorted out. So that explains all the share issues, paper shuffles and complexities of the deal. The second is that Stokes eases his erstwhile partner, KKR, the US buyout group, from co-ownership of Seven Media Group (SMG), to a shareholding in West Australian Newspapers (WAN) and then goodbye. In one respect the Seven Media Group’s ownership has been “re-Australianised”.
There is no real dilution of media voice, if anything WAN will be a stronger company, better able to survive the changes happening in the media than WAN was before the deal appeared.
Far from needing cash, Stokes now will have a string of banks offering more money to finance the next deal. The Stokes camp was busy claiming yesterday there were no deals in the offing, but media commentary this morning featured that angle prominently.
In paying just $132 million, Stokes not only neutralises his tax problem and eases KKR to the sidelines, he will now control two major listed companies, WAN and Seven Group Holdings.
The deal has one negative; it tells us that corporate Australia (investors such as Stokes) and financiers such as the banks and big fund managers, have rediscovered their love of debt.
It’s a negative because this rediscovery of the joys of debt and leverage comes as inflation is rising around the world, as Australia faces more rate rises down the track, and more importantly, as the Middle East slowly implodes, putting oil prices (and inflation and interest rates) into a possible replay of 1973-79.
Those concerns were nowhere to be seen in the media reports this morning. But one thing is certain, Stokes will have the financial strength, once the WAN deal is done, to withstand another crunch. He survived the GFC, as did the Seven Media Group, (which had $3.2 billion in debt). Last year’s creation of Seven Group Holdings from cash-poor WesTrac and cash-rich Seven Network shored up the empire.
Now he has more media clout than anyone else in this country. Not since the days of the old Fairfax media empire has anyone had a mixture of major assets, with the ability to expand. Consolidating regional TV would be one area, if the federal government changes the media restrictions on the maximum share of the national market (75%).
Of course Fairfax controlled the Sydney and Melbourne broadsheets (The Age and the SMH), The Australian Financial Review, a Sunday paper, some suburbans and regionals and the Macquarie Radio Network at its peak (it now has a smaller radio network). That mix isn’t allowed now, but Stokes will dominate the media in Western Australia and across the country be the largest locally based media group. He has a major presence in Queensland with the leading regional TV network and the top-rating Brisbane station.
He of course has links to James Packer at Consolidated Media, but he has gone past the media empire that Rupert Murdoch used to own in Australia (the Ten Network and his existing News Ltd papers).
But if he wanted to, Fairfax Media remains open to him, if he wants it.
From initial scepticism yesterday, the market told the story as opinion turned in Stokes’ favour. His Seven Group Holdings shares hit an all-time high of $9.44 in trading yesterday afternoon after investors shrugged off their unease at the huge related party transaction this $4.1 billion (enterprise value) deal is. The share finished at $9.30 yesterday, the highest closing price since the company was created in the controversial merger almost a year ago between Seven Network (which owned the 45% stake in Seven Media Group) and WesTrac, Stokes’ Caterpillar distribution company.
And there’s a further beauty for this deal. Stokes only has to win over a few thousand mostly Western Australian shareholders at the meeting on April 11. He is a Perth champion, a local boy now striding the national stage.
He won’t have any trouble, the animosity of several years ago from some WAN shareholders has gone as Stokes and his management have proved themselves capable of slowing the rot in the company and now giving it a path out of Perth and a growth option or two.
Stokes has also sucked more than a billion dollars from investors interested in the media and who would have been looking to invest in the reported float later this year of the Nine Entertainment group by CVC. That will have a $5 billion value, around what WAN will be valued at once the series of deals are concluded.