At a time when traditional media stocks are under the pump, you would think that billionaire mogul Kerry Stokes would be prioritising supporting his debt-laden Seven West Media.
But no, Stokes hasn’t injected a dollar into Seven West Media since a recapitalisation proposal in April 2015. Meanwhile, last week it was revealed his 61%-owned industrial conglomerate Seven Group Holdings had spent close to $350 million amassing a 10% stake in battling building products group Boral.
If Stokes isn’t prepared to recapitalise Seven West Media, which has a share price wallowing at around 17c, then his Seven Group Holdings should surrender control and sell its 40% stake.
When Stokes first raided the WA News share register in October 2006, he paid $11 a share amassing a 14.9% stake. He then crept up the register and eventually seized board control in December 2008 when he became chairman after the incumbent directors resigned en masse despite Seven only controlling 22.5% of the shares on issue.
It was quite a resources industry takeover as the new WA News board included then Woodside Petroleum CEO Don Voelte and Rio Tinto’s iron ore boss Sam Walsh.
From that day on, there has rarely been a negative story in The West Australian about the mining industry — given the paper is controlled by one of the state’s biggest resource industry moguls. It was a conflict of interest that has never been adequately managed and remains to this day.
And speaking of conflicts of interest, Stokes has been involved in two of the largest and most controversial (though fully disclosed and within ASX requirements) related party transactions completed by Australian public companies, the reverberations of which are still being felt.
These were triggered by his decision in November 2006 to sell a 50% stake in his media empire to private equity firm KKR in a deal which valued the businesses at $4 billion and involved KKR injecting $735 million of equity, with the balance of the funding coming from a $2.5 billion debt facility.
However, when the GFC struck in 2008, Stokes found himself carrying debts of more than $1 billion in his private company, primarily supporting his WesTrac business which has boomed from having the WA franchise to sell and maintain Caterpillar mining equipment.
In 2010, the ASX listed Seven Network agreed to buy WesTrac for $2 billion, creating a messy debt-laden media and industrial conglomeration which had to manage the duel challenge of Stokes remaining a media mogul and KKR securing a profitable exit from its media joint venture.
The solution was a now notorious related party transaction where Seven Network sold its television and magazine assets for a ridiculous $4.1 billion to the old WA News in April 2011, facilitating a profitable exit for KKR.
WA News was renamed Seven West Media and for minority shareholders, this has been a slow moving disaster ever since, while Stokes’ other investments have boomed.
Fast forward a decade and media investments, primarily the 40% stake in Seven West Media, now comprise a meagre $100 million of the assets owned by Seven Group holdings which is a $6 billion conglomerate spanning WesTrac, Coates Hire, some oil and gas assets and now a 10% stake in Boral.
Given the ugly memories of Seven West Media’s performance and the confusion of having two listed companies called Seven, it is time to tidy up this situation. A sensible start would be renaming Seven Group Holdings at the upcoming AGM. Why not just call it “Stokes Group Holdings”.
If Stokes wants to keep calling it Seven Group Holdings then it should buy the remaining 60% of Seven West Media that it doesn’t own, putting minority shareholders out of their misery.
As for what happens with Boral, Stokes will do his usual creeping up the register followed by a request for a board seat. He is effectively Australia’s most prolific shareholder activist who wins far more than he loses, but rarely makes a full bid for control.
However, the minority shareholders in WA News ended up being enormous losers and they shouldn’t have to suffer ongoing losses with the billionaire in control of their business while not prepared to inject any more capital or increase his stake in their hour of need.
Instead, Stokes is busily shrinking his media empire, selling off Seven West’s magazine division to Bauer Media for $40 million last month, and even doing a sale and lease back on the old WA News headquarters at Osborne Park in Perth, a move which brought in $75 million.
These two deals have raised $115 million in much-needed cash over the past month, reducing Seven West Media’s net debt, which was last publicly disclosed as $541.5 million in February, to below $500 million for the first time in a decade. It peaked at more than $2 billion in 2011 as these accounts from August 2011 show when the group claimed it had assets worth $5.1 billion and net equity of $2.51 billion.
The latest Seven West Media accounts reveal net assets of just $20.8 million and accumulated losses of $3.4 billion, yet the bloke responsible for this has been chairman for 12 years and is now 77.
It is time to either give someone else a go, or put the minority shareholders out of their misery by announcing a mop-up bid — something which could have been funded by the $350 million diverted into Boral shares over recent months.