Desperate times, desperate solutions. Kerry Stokes might have been like Tiberius on the telephone when cajoling Tony Abbott into not agreeing with Malcolm Turnbull’s ideas about media law reform, but the diminished billionaire has a more pressing problem: shares in Seven West Media are on the nose and needing help. Which is what emerged yesterday when Seven West Media attempted to put a support base under the shares by announcing plans to buy up to $75 million of them over the next year. Seven West shares have fallen sharply since the 2014-15 results were announced on August 19, down 17.6% to the all-time low of 66.5 cents hit last week. The fall from the end of 2014 when the shares were trading at $1.30, is a very nasty 48%-plus. They rebounded nearly 7% yesterday in the wake of the buyback announcement. That was after the shares jumped an unexplained 9%-plus last Friday. Perhaps word had leaked early? The buyback will see 6.6% of the issued shares (or more than 99 million bought back) Kerry Stokes’ share in the company rise to more than 43% from the current level of 41%. So shareholders will pay to have the share price supported, and see Kerry Stokes tighten his grip on the company, all without using a cent of his own (much smaller) fortune. — Glenn Dyer
Trust us on debt. A sign of the desperation at Seven West can be seen in yesterday’s announcement where the company said that if the buyback is done in full its (debt) “leverage is forecast to remain under 2.1x this year”. That’s a bean-counter’s way of saying debt will rise, but not by too much, “trust us”. Seven West management made a big deal out of cutting debt in the year to June (that refinancing of the convertible notes earlier in the year included more than $100 million to reduce debt) and the leverage ratio was 1.85 times earnings at the end of June. So it will now rise back past two times earnings, but not to the worrying 2.45 times level it was at the end of 2013-14.
Seven had borrowings of $874 million at June 30, down from more than $1.2 billion a year earlier. Now debt will also rise at a time that the company has forecast a 5% to 10% slide in earnings, a further sign of the desperation to stop the rot. And another thing, the $75 million cost to the buyback (and the 99 million shares involves) implies no significant rise in the Seven West share price. So, in effect, Seven will spend $75 million of shareholders’ funds, push up debt, merely to run up and down on the spot (so far as the share price is concerned) for most of the next year, all while earnings fade a little. — Glenn Dyer
Buybacks fashionable in media. But Seven isn’t the only 90-pound weakling in the media. It has company. Weak advertising revenue gains, the rise of streaming-video services (Netflix, Stan, etc) and mobile viewing on smartphones and tablets have hit free-to-air and pay-TV networks here and in other markets. Seven though has been hit harder than most (but not as badly hit as Ten, which will be first cab down the tube if the Foxtel deal doesn’t get up, so some investors reckon). Seven West Media joins rivals Nine Entertainment, Fairfax Media and News Corp in introducing share buybacks this year to support weak share prices. And Seven’s major shareholder Seven Group Holdings announced a share buyback in February of this year when its profits fell sharply.
These buybacks have one purpose only: use shareholder funds to support the share price. In the cases of Seven Group, Seven West, News Corp and Nine, the real beneficiaries are rich folk (like Kerry Stokes, the Murdoch clan, and in the case of Nine, two US private equity investors). So be sceptical when you read of moves to hand out goodies to broadcast media companies such as ending the TV licence fee and the audience reach rule. (Will Kerry Stokes ring Prime Minister Malcolm Turnbull to nudge him, or will he just pop around the block to Point Piper in Sydney for a Saturday evening barbie and a quiet word?). Ending the licence fee and the reach rule might put free-to-air TV back on an even footing with the Murdoch clan’s Foxtel, but it is also a form of state aid (like a tariff or quota on imports, for example). The likes of Kerry Stokes and the US private equity funds will benefit from these moves, if they occur, as will billionaire shareholders in Ten, like Lachlan Murdoch, James Packer, Gina Rinehart and Bruce Gordon. — Glenn Dyer