THE DISTILLERY: Seven's test

Jotters analyse what Seven West's capital raising means for the profit and competition in the sector, while one highlights Westfield's desperate revenue play.

Seven West Media would have found it hard to raise equity with its shares any lower, illustrating just how bad the advertising market is, and is expected to remain for some time. The move puts the creeping tactics of media billionaire Kerry Stokes on hold for a moment, but don’t forget Seven is also trying to keep Nine Entertainment at bay, which has debt problems far worse that itself. That’s the broad offering from the nation’s business commentators this morning.

Fairfax’s Adele Ferguson takes a step back to examine just how far Seven West Media has fallen since Stokes started shuffling his portfolio around last year.

"The move by Seven West Media to tap investors for $440 million in a 1-for-2 equity issue during the depths of a bear market speaks volumes about the poor outlook for its main source of revenue, the advertising market, and the group's debt levels and interest payments. The capital raising was pitched at $1.32 a share, an 18.5 per cent discount to Friday's close, and a massive discount to what the company was trading at in April last year when West Australian Newspapers spent $4.1 billion to buy Seven Media Group and new shares were issued. To put it into perspective, the group's main shareholder, Kerry Stokes, who is taking up his full entitlement to the latest offer, paid $15 a share for his first 20 per cent holding in West Australian Newspapers. The level of shareholder erosion explains why the company's new boss, Don Voelte, said during an investor phone hook-up yesterday morning: ‘This hasn't been a good ride for anybody.’”

The Australian’s John Durie looks at how the raising impacts Stokes’ intentions.

"This will effectively dilute earnings a share by about 30 per cent. Stokes owns 67 per cent of Seven Group Holdings, which owns about 33 per cent of Seven West Media, the parent company to The West Australian newspaper and the Seven Network, among other assets. He has steadily increased his stake in the company by taking shares rather than cash in new dividend issues, but has now opted to take cash. This suggests he is looking to raise more cash, but having forked out about $140 million to maintain his position the fact is Stokes has some catching up to do, as do the original WAN shareholders who have stuck with the company.”

Also on Stokes’ long-term intentions, The Australian Financial Review’s Chanticleer columnist Tony Boyd says this just reinforces the notion that Stokes is Australia’s smartest media mogul – some would argue he’s the only genuine Australian media mogul left.

"His attack on James Packer’s Consolidated Media Holdings was a good case in point. He forced Packer to lift his holding in the company while at the same time using the exercise to become Packer’s friend. Several years after that manoeuvring, Stokes is holding the whip hand now that Rupert Murdoch wants to buy Consolidated Media. Having already shown his hand with a "proposal” to buy Consolidated Media, Murdoch is likely to be forced to do a deal with Stokes, who could well demand some jewel in the News Corp empire. Those who know Stokes well say his competitive edge is his willingness to consider all options including ones that are not immediately obvious when the corporate play begins.”

Business Spectator’s Stephen Bartholomeusz makes the point that Seven’s capital raising comes with such ease in comparison to the debt situation at rival Nine Entertainment.

"The private equity-owned Nine is impossibly over-leveraged and facing a February 2013 deadline for repayment of its $2.8 billion of senior debt. With hedge funds owning more than half that debt and agitating for a debt-for-equity swap it is probable that, one way or another, Nine will be recapitalised at some point before the end of this year. Seven West’s issue might well create some pressure for Nine’s predicament to be resolved sooner rather than later, given that the ratings-critical rights to rugby league broadcasts are up for grabs. Those rights are expected to bring the Australian Rugby League Commission about $1 billion of revenue over the next five years and Seven West is expected to try to wrestle them off Nine, or at least force their price up. The capital raising gives Seven West a lot of potential firepower and flexibility to continue to attack Nine while it remains vulnerable.”

Fairfax’s Ian Verrender says Kerry Stokes and Nathan Tinkler have a lot in common, but the latter’s appetite or at least comfort with heavy debt levels, splits the two.

In other company news, Fairfax’s Tony Moore looks at the growing outrage that Westfield is sparking by moving, quietly, towards paid parking at some of its centres that would even apply to employees. Keep an eye on stories like this. The stagnant growth in traditional retail as online spreads its wings will continue to pressure Westfield to drop its rental rates – charging for parking won’t do a thing.

In economic matters, Fairfax’s Tim Colebatch urges his readers to start thinking about the prospect of more toll roads to pay for more infrastructure, including roads and trains, because that’s what state and federal governments are thinking about.

The Australian’s economics editor David Uren notices that the International Monetary Fund has downgraded the growth forecasts for emerging economies like China, India and Brazil. But it’s far too occupied with the problems in Europe to give this problem the attention it deserves.

In international affairs, Fairfax’s Michael Pascoe takes the unusual line of suggesting that many if not most of the banks guilty in the Libor scandal should go unpunished.

And finally, Fairfax’s Insider columnist Ian McIlwraith gives us the inside skinny on a deal that has made AFL Commission chairman Mike Fitzpatrick a mint, but lets himself down by referring to Julia Gillard in the opening paragraph as "prime ministerial redhead Julia Gillard”. Brunettes are always bigots.

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