How will Stokes bet his ConsMedia stake?

With a ConsMedia takeover ruled out, Seven's Kerry Stokes now has to decide what to do with the $500m windfall his group stands to receive via a News deal. He has three main options.

The half-hearted tussle for Consolidated Media Holdings is over, with News Ltd deemed the soon-to-be-confirmed winner.

Seven Group’s tilt for ConsMedia was always a contentious one, due to the need for competition in the market, and the wording in the ACCC’s decision spells it out clearly:

"The proposed acquisition would lead to Seven having substantial interests in a major free-to-air network and the largest subscription television company in Australia, as well as a 50 per cent shareholding in the company involved in the acquisition of the rights to the majority of Australian sports that are broadcast by Foxtel."

"The ACCC concluded that the proposed acquisition is likely to result in a substantial lessening of competition in the market for free-to-air television services.”

So, as this one-horse race comes to an end, the focus turns to what Seven will do with the payout it is set to receive from News Ltd for its 25 per cent stake in ConsMedia.

News’ $2 billion bid will net Seven a cool $500 million to play around with, a windfall that the media group should have no trouble finding a way to spend.

One obvious move would be for Seven to spend the money building up its Australian media holdings. With the value of media assets on the decline, there are bargains to be had in the market.

Greg Fraser, media analyst at Fat Prophets, said this could be an option for Seven.

"There are a range opportunities for them. They’re in the business of investing in the media industry and there’s no doubt that the value of media assets has declined so there may be some opportunities,” he said.

There has also been speculation that the group may be looking to acquire the 67 per cent of Seven West Media that it does not already hold.

Seven West only went public a year ago, merging with West Australian Newspapers, but with its share price plunging of late (hitting an all-time low of $1.09 on September 28), the timing may be right for Seven to swoop in with a joint partner. The most likely partner would be private equity group KKR, another major shareholder in Seven West. The $500 million would certainly help Seven make such a move.

Seven could also make the decision to funnel the money into building up its industrial services business in Western Australia and NSW. WesTrac Australia has proven a success, and with the acquisition of the Bucyrus distribution and support business, the group is clearly pushing this aspect of its business forward. Still, WesTrac relies on a strong mining sector, and with recent concerns over China and our own mining boom, Seven could make the decision to hold off on further investment.

Another option would be for Seven to use the money to pay off some of its debt. In the current environment, and with the problems facing other networks, Seven could do worse than working to improve its balance sheet. Seven West has total assets of $5.3 billion, and liabilities of $2.4 billion. But if you strip out the value of intangible assets – like its mastheads (something that Fairfax Media had to do quite recently), all of a sudden you have a media company with liabilities well in excess of assets.

It can’t have escaped Seven chairman Kerry Stokes what trouble the other networks are in. Nine Network continues to fight off the receivers, while Ten Network is left struggling with rising costs and a dwindling audience. Meanwhile none of the media groups have escaped unscathed from persistently weak advertising revenue.

The conservative option would be for Seven to take this on board and pay off some of its debt rather than spending hundreds of millions to take Seven West private.

Still, Stokes is known as a punter who likes to take a gamble so it would hardly shock the market if a Seven West bid was tabled in the coming weeks or months.

In fact, if Seven West’s share price stays at its current lows, the market will likely be expecting such a move.

News Ltd is the owner of Business Spectator and Eureka Report.

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