Billionaire Kerry Stokes has tightened his grip on Seven West Media after the company’s long-suffering shareholders yesterday strongly endorsed yet another controversial related-party transaction.
The old WA News was always a popular stock with retail investors in Stokes’ adopted home town of Perth, but the company’s headquarters has since been shifted to Pyrmont in Sydney, which might explain why yesterday’s EGM was so poorly attended.
In 2006, after then-senator Steve Fielding delivered John Howard the Senate numbers for media ownership reform, complete with unlimited foreign investment, Kerry Stokes immediately raided WA News, paying an excessive $11 a share or $343 million for his initial 14.9% stake in the monopoly, Perth-based newspaper business.
Those 23,000 WA News shareholders who hung on for the ride with Stokes have enjoyed nothing but pain, particularly after the disastrous $4.1 billion acquisition of Seven Media Group in 2011. This deal led WAN to be rebranded as Seven West Media.
Seven West’s lead independent director, David Evans, the son of former AFL chairman Ron Evans, was conceding nothing yesterday, denying that WA News overpaid for Seven and denying that this latest Seven West capital raising was structured to dilute retail shareholders.
Seven West was always in trouble after loading up with excessive debt to buy Seven, and this was only partly addressed through a $440 million capital raising 2012.
This raising was priced at $1.32 per share — well below the $5+ share price before the 2011 Seven Media Group acquisition — and retail investors went into that raising owning 27% of the company.
The $118 million retail component of that heavily discounted 2012 raising was relatively well supported, with $75 million in applications. However, the shortfall of 41 million shares was sold off to institutional investors, causing retail dilution.
It was a very different story with the latest $311 million capital raising priced at $1.25.
Institutions took up $289 million worth of the $374 million shares they were offered but, with the price sagging, retail participation slumped to just $22 million of a maximum $238 million.
Bizarrely, Seven West trumpeted this result as “strong support” from investors.
About 12 independent retail shareholders attended yesterday’s 30-minute EGM, and the board got a very strong message about the poor treatment of retail shareholders.
Why wasn’t the latest offer renounceable so that non-participants could either sell their rights on-market or into a bookbuild? The likes of Tabcorp, NAB, Origin, AGL, ASX, Goodman Fielder, Brambles, Arrium, ALS, Super Retail Group and Bluescope Steel have all offered such a process over the past five years.
And seeing as there was no ability to renounce, why weren’t retail shareholders given a chance to apply for additional shares from the shortfall? The likes of Stockland, Wesfarmers, Virgin, Onesteel, Bluescope, Mirvac, Wesfarmers, Australand, Goodman Group, DUET, GPT, AWB, Santos, Billabong, Suncorp and Asciano have all offered this option in non-renounceable offers over the past eight years.
Because of these features — along with a very skinny discount — Stokes was able to lift his controlling stake in Seven West from 35% to almost 41% courtesy of the related conversation of $340 million worth of converting preference shares into ordinary voting shares at $1.28 a pop.
As Kerry Stokes sat silently next to him, the best David Evans could do yesterday was claim the latest Seven West capital raising was unique and the subject of negotiations between the independent directors and Stokes.
Sadly, this deal is just the latest example of independent directors failing minority shareholders.
The original WA News directors should not have resigned en masse in December 2008 after Stokes’ stake had crept up to just 22% of the company.
Then, the new independent directors who were selected by Stokes should never have agreed to the excessive $4.1 billion acquisition of Seven Media Group in 2011.
After the latest effort by another batch of Stokes-selected independent directors Stokes has further crept up the Seven West Media register to have a record-high stake of 41%, while never paying a premium to all shareholders for control. He won’t be able to buy any more shares until December this year, but control is no longer in question.
By staying on the sidelines with this latest raising, retail investors have been diluted down to below 20% of Seven West, and they are a pretty angry bunch. It is hard to think of a stock that has performed worse in recent years, when retail investors sat back and co-invested alongside a single controlling billionaire.
Ultimately, this is a story about Kerry Stokes trying to hang onto control of Seven, when he should have done a James Packer and walked away from his private equity partners KKR.
Instead, WA News was co-opted to pay up for Seven and KKR got out when the Australian dollar was strong, pocketing a final $260 million in cash when it offloaded the last of its Seven West shares two years ago at $2.21 a pop.
These same dopey institutions that bought this stock have now injected more money to finally try to deal with all that excessive pre-GFC debt, which was used for the original KKR entry into Seven, after it missed out in the earlier auction for James Packer’s PBL Media business.