BREAKFAST DEALS: Stokes dreams big
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Kerry Stokes, West Australian Newspapers, Seven Media Group
Bigger really is better and that's the message Kerry Stokes and the board of West Australian Newspaper Holdings (WAN) was keen to impress upon analysts and media yesterday as WAN unveiled its plan to take over Stokes' Seven Media Group (SMG) in a $4.1 billion deal. While investors will take time to get their heads around the complex deal, there are a few things that stand out immediately. WAN might be the one buying SMG but this is essentially a canny Stokes rolling his all of his media assets into one major Australian-listed media company. The move not only gives his private equity partner in SMG, Kohlberg Kravis & Roberts (KKR), a handy exit strategy but also allows SMG to repay a $650 million inter-company loan to Seven Group Holdings (SGH). Stokes is going to control 30 per cent of the new company, Seven West Media, while KKR will hold close to a 12 per cent stake. Merging the largest free-to-air TV network with a successful newspaper certainly has merits – there's the $15 million synergy from shared advertising platforms, forecast revenue of $2 billion with earnings in excess of $300 million and the deal essentially provides WAN with an opportunity to diversify from being the publisher of a single masthead newspaper to a local media heavyweight with its fingers in a number of pies. So that's the price that WAN shareholders have to believe in if they are going to back the board's decision to issue $1.15 billion at $5.20 a share to pay for the deal. WAN traditionally has had the least leveraged balance sheet of Australia's media companies but that's set to change pretty quickly as it will emerge with about $2 billion of net debt. The 3.1 times net debt to EBITDA is already making a few investors jumpy and the WAN board did say that their main priority was to get it down to 2.5 times net debt to EBITDA as quickly as possible. That certainly didn't stop Stokes from talking up his acquisition ambitions; the mogul was keen to point out that Seven West would have the firepower to pursue opportunities at home and overseas. There was also clear reference to seeking other newspaper opportunities and while that immediately got people thinking about Fairfax Media, Stokes has played down talk of any immediate move. Another avenue that gets Stokes' tick is the tech space, where Seven West will look to take advantage of changing technology; Yahoo7 could play a key part in that thinking. And let's not forget the regional TV scene where the new company will have the muscle to take over Prime Media Group, provided chairman Paul Ramsay is willing to sell his stake to Stokes.
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Nine Entertainment, CVC Asia Pacific
The WAN-Seven Media Group merger will no doubt be keenly watched by Nine Entertainment and its private equity owners CVC Asia Pacific, given that the $5 billion float of the network looks firmly on the cards this year. Just exactly when CVC will launch the IPO is subject to much conjecture and a successful debut of Seven West Media as a listed media powerhouse will certainly buoy CVC and Nine. However, as The Australian Financial Review points out, the WAN-SMG deal is a complex one and that has sparked fears that it could further delay the Nine float. For now, the IPO is tentatively slated for the second half of this year and while Nine boss David Gyngell has previously hinted that there is no hard and fast timetable for the float, the performance of Seven West Media, provided WAN shareholders say 'yes' to its creation in April, could play a part in the timing..
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Rupert Murdoch, Elisabeth Murdoch, News Corporation, Shine TV
Sticking with the media theme, Rupert Murdoch's News Corporation has officially bought his daughter Elisabeth's television production company Shine for a $US673 million. Shine is the brains behind the local ratings monster MasterChef Australia and in fact holds the keys to the entire MasterChef franchise around the globe along with a bevy of other popular TV series. Not only does the deal bring those programs under the News Corp umbrella, but more importantly it brings Elisabeth Murdoch back into father Rupert's media empire. Elisabeth has agreed to join News Corp as a senior executive once the deal is done and dusted. She will join her brother James Murdoch, the 38-year-old chairman and chief executive of News Corp's European and Asian businesses and widely seen by many as the heir apparent. However, Elisabeth is no slouch after building Shine, which reported £28.4 million in profit and £265 million pounds in revenue in 2009, from scratch – and James just might have some competition for the top job once Rupert Murdoch decides to vacate his throne...
Woodside Petroleum
Woodside Petroleum reported a seven per cent lift in full-year net profit in what will be chief executive Don Voelte's swansong, but the market was more focused on what Voelte had to say with regards to Woodside's share registry than with its numbers. Woodside's outgoing boss said that he and Woodside chairman Michael Chaney were in talks with the company's biggest shareholder, Royal Dutch Shell, about the possible sale of its remaining $8 billion stake. Voelte and Chaney could do well to continue the talks because there's a good chance that Shell will further reduce its stake this year. Woodside's management was caught unawares the first time Shell cut its stake and it looks like Voelte and Chaney would like to be kept in the loop this time around. Other than that there just wasn't a lot of information, which was a disappointment for some. There was no news on who is going to replace Voelte, or even how the search process is progressing, and Woodside has failed to quell the uncertainties with regards to its key LNG growth projects, Pluto and Browse. The one thing that is clear is that Voelte is not going to be a complete stranger to Australian corporate life once he leaves Woodside, with the tough talking Nebraskan deciding to keep his seat on the board of West Australian Newspaper Holdings.
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New Hope, Northern Energy
Robert Millner's New Hope Coal has moved to create a sense of urgency among target Northern Energy Corporation's (NEC) shareholders, telling them that they have only four days to accept New Hope's $1.85 a share offer. New Hope reiterated that there were no competing offers on the table for NEC and time was running out for NEC's shareholders. Time is certainly running out for NEC shareholders with New Hope's offer set to close this Friday but NEC's management is adamant that there is another suitor in the picture and is believed to be closing in on a deal. However, the market is starting to have its doubts and NEC shares did slip in yesterday's session. NEC will be under pressure to provide some details to its shareholders and the market or risk their wrath if the talks fail and New Hope walks away.
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Wrapping up
Air New Zealand has been forced to reduce its strategic stake in Virgin Blue after a report commissioned by Virgin found the Kiwi airline in breach of Virgin's foreign-ownership restrictions. Air NZ bought a 14.99 per cent stake in Virgin Blue last month but the report has since found that the acquisition takes the total stake held by foreign entities in Virgin Blue to 49.78 per cent. Traffic camera group Redflex Holdings has finally found a suitor with the Carlyle Group and investment bank Macquarie Group putting forward a $US304 million offer. Carlyle and Macquarie will pay $2.70 per share, a 20.5 per cent premium to Redlfex's last traded price on Friday, to buy all ordinary shares in Redflex. Redflex shares closed up 15.62 per cent at $2.59, a shade below the offer price. The move comes after Redflex rejected an initial $2.50 per share proposal from Macquarie in August last year. Redflex is being advised by Greenhill Caliburn. In the resources sector, The Australian Financial Review sheds some light on just what is going on at Gloucester Coal. The miner went into its shell last week after cancelling a couple of investor meetings and the paper reports that the reason for the back down was that Gloucester's boss Barry Tudor is on his way out and will be replaced by Donaldson Coal's former CEO Brendan McPherson. The management reshuffle could be a precursor to Gloucester taking full control of Donaldson Coal. Elsewhere, Beach Energy is on its way to taking full control of target Impress Energy after it picked up the 20 per cent stake held by Impress' biggest shareholder Senex Energy. Senex, formerly known as Victoria Petroleum, has decided to merge with Stuart Petroleum in a $78 million deal. The new entity will have a market capitalisation of $345 million. Meanwhile, Anchor Resources has rejected an unsolicited conditional takeover offer from China Shangdong Jinshunda Group. Shangdong Junshunda lobbed its 28 cents a share offer through its Australian subsidiary Sunstar Capital in December. Anchor's management said that the offer was highly conditional and undervalued the miner.
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