The big question for the Australian media — especially free-to-air TV — in the next year isn’t streaming video, the declining ad markets or weak ratings for established programs like The Block, My Kitchen Rules or MasterChef. Nor will it be the emerging deals between News Corp, and perhaps Nine/Fairfax, and social media platforms to try and staunch revenue and profit losses. Nor is it the fate of Stan, the streaming service owned by Nine, or the debt and weak finances of Foxtel (though it could be a player).
No, the big issue will be the future of Kerry Stokes’ 41%-owned Seven West Media (SWM), the fading media giant now worth a fraction of the $4.1 million value created in its 2011 birth from the merger of Seven Network and West Australian Newspapers.
At some stage in the next year, Seven Group Holdings (SGH), Stokes’ key company and holder of that 41% in Seven West Media, will sell out. To whom isn’t known yet, but the best bet in media circles is either News Corp/Foxtel or the Murdoch clan’s other company, Fox Corporation. And when is this deal coming? We may have just seen the first hint of its timing in the surprise announcement by Seven Group Holdings last week that founding director, Bruce McWilliam, would be retiring from the board at the annual meeting in November in order to focus on his role at Seven West.
McWilliam is commercial director of Seven West Media and has been very close to Stokes ever since joining the old Seven in 2003. He was on the original Seven Group Holdings board in early 2010 when that company was formed and has been one of Stokes’ key advisers. Besides Stokes and his son Ryan, he has been the only common director between the two companies. Now he is departing Seven Group Holdings, severing those links completely.
The wording of last week’s announcement said a lot:
“Seven Group Holdings announces that Mr Bruce McWilliam has advised that he will retire from the Board at this year’s Annual General Meeting, having completed a three year term since his last election. He will continue his Seven West Media role with more time to focus on it.”
“Bruce has had a long and close association with SGH,” said Stokes. “The Board understands that Bruce has important commitments at SWM, which will benefit from Bruce’s additional availability and focus on that business.'”
“It has been a great privilege to work with Kerry Stokes, Ryan Stokes and my fellow directors and executives,” said McWilliams. “In my executive capacity as Commercial Director at SWM (which has always been my principal focus), I look forward to working with James Warburton again and will be doing my upmost to ensure that SWM remains well-positioned for the future and continues its leadership in television.”
The common factor in those three comments is McWilliam’s return to Seven West media full time. Normally, loyal, competent executives or directors of associated companies like Bruce McWilliam are given a last resting place on the board of the parent company in empires like that of Kerry Stokes. Instead the comments from the company, Kerry Stokes and McWilliam himself read like he is being sent back to the trenches for one last big push.
It could be a form of punishment, but chat around the TV industry is that McWilliam is being returned to Seven West full time to oversee the final fate of the country’s second largest commercial free-to-air TV network (and fading print business) and to make sure it doesn’t fall into the wrong hands.
That will involve more cost cutting (which will be the task of the new CEO James Warburton) but also positioning Seven West Media for some sort of merger or acquisition.
Seven West’s earnings guidance for 2019-20 isn’t that of a company looking to make a big takeover. “Seven West Media is forecasting FY20 EBIT of $190 to $200 million,” the company said in last week’s results. That will be down 5% to 10% on the $212 million earned in 2018-19. It is more a dose of reality to start establishing a realistic value for a deal.
Warburton’s comments in last week’s earnings release that “we will be a hunter and explore M&A opportunities in both traditional media and non-traditional adjacencies that are positive for our shareholders” are logically absurd. You can’t be a company hunting for a big deal with the weak financial strength of Seven West. Its gross debt top $600 million, comfortably exceeding the market value of the company at $580 million, and they’re on a short leash from the banks until 2021.
But you can be prey dressed up as a hunter and looking to do a deal which will be overseen by the smartest man in the shrinking room of Australian legacy media. McWilliam has been returned to Seven West Media to make sure that whatever deal is eventually done doesn’t disadvantage Kerry Stokes and his family in the Australian media and especially in the small business world that is Western Australia.