Stokes Combines Seven Media, West Australia Newspapers in $2 Billion Deal

Billionaire Kerry Stokes will combine West Australian Newspapers Holdings Ltd. with Seven Media Group in a $2 billion takeover, creating the nation’s biggest media company with the top-rated TV network and more than 25 magazines.

West Australian will acquire Seven Media for A$1.98 billion ($2 billion) from Seven Group Holdings Ltd. and buyout firm KKR & Co., the companies said today. Including assumed debt, the A$4.09 billion offer would make it the biggest ever purchase of Australian media assets, according to data compiled by Bloomberg.

The publisher of Perth’s sole daily newspaper will add TV stations across Australia’s five largest cities and the country’s second-most visited Internet portal in its purchase of Seven Media. The move follows more than A$400 million of investments announced by rival tycoons James Packer, Lachlan Murdoch and Gina Rinehart since October as advertising sales are projected to grow to a record A$13.9 billion this year.

“This deal is happening in the backdrop of the improving economic environment for the media in Australia where people are willing to employ and willing to spend,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., which manages about $93 billion. “These guys will do whatever they can to get into the online business, which is a major, major threat to their traditional business models.”

Photographer: Ian Waldie/Bloomberg

The Seven Group Holdings Ltd. television studio in Sydney. Close

The Seven Group Holdings Ltd. television studio in Sydney.

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Photographer: Ian Waldie/Bloomberg

The Seven Group Holdings Ltd. television studio in Sydney.

Biggest Media Company

The purchase will help West Australian post net income of A$304.7 million, triple the profit it had estimated excluding Seven Media, for fiscal 2011, it said. Earnings-per-share growth will be limited to 6.8 percent because of the new stock to be issued, it said.

Seven Media’s magazines include Men’s Health, In Style and Management Today. Channel Seven’s ‘Packed to the Rafters’ is the country’s most-watched drama, according to its website.

West Australian’s market value will likely increase to A$3.5 billion, making it the biggest Australian-domiciled media company, according to the newspaper publisher.

The enterprise-value offer for Seven Media is 11 times estimated earnings before interest, taxes, depreciation and amortization in the year ended June, according to an investor presentation. That’s in line with the average multiple offered in Australian media acquisitions, according to data compiled by Bloomberg.

“The implicit price of the Seven assets appears reasonable,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty in Sydney, including Seven shares. “This action also simplifies the exit for KKR who then avoid the prospect of seeking to sell a part share in an asset.”

Expanding Market

Stokes, 70, is Australia’s tenth-richest person, with a fortune of $1.9 billion, according to Forbes magazine. After being adopted at three years of age, struggling with dyslexia and sleeping on the streets at 15, he began building his wealth with property investments, he told STM magazine in a 2008 interview.

Rinehart, Australia’s richest person with a $9 billion fortune estimated by Forbes, has acquired 10 percent of third- ranked broadcaster Ten Network Holdings Ltd. and a stake in Fairfax Media ltd.

Packer is worth $4.4 billion according to Forbes and last year teamed with Lachlan Murdoch, son of News Corp. Chairman Rupert Murdoch, to buy 18 percent of Ten Network.

West Australian shares were halted from trading after closing at A$6.34 on Feb. 18. Seven Group shares rose 2.3 percent to close A$9.30 in Sydney.

The nation’s advertising market will probably expand 6.5 percent this year, led by a 17 percent growth in Internet spending and 7 percent increase in TV expenditures, according to estimates last month at Morgan Stanley. Overall spending rose 10 percent in 2010 after shrinking the previous year, according to the broker.

Capital Raising

West Australian will issue A$1.08 billion of stock, A$250 million of convertible preferred stock and repay A$650 million of Seven Group Holdings Ltd.’s debt. O’Sullivan Partners is the financial adviser to West Australian News while JPMorgan Chase & Co. and UBS AG will jointly underwrite and manage the entitlement offer.

Seven Group, which last year acquired Stokes’ private company Westrac Holdings for about A$1 billion, will own as much as 34 percent of West Australian News and KKR will have about a 13 percent stake, according to the statement.

“We expect existing West Australian Newspapers shareholders will be frustrated -- but should not be surprised - - by the requirement to finance another ‘Stokes’ related party transaction,” Justin Diddams, an analyst at Citigroup Inc. said in a note to clients today.

M&A Revival

Stokes’s Seven Media was formed when Seven Group’s predecessor Seven Network Ltd. sold its television and magazine assets into the venture with KKR in 2006, when changes to the nation’s media ownership laws led to deals valued at more than A$10 billion, including Packer’s sale of his television and magazine assets to a venture with CVC Asia Pacific Ltd. and Fairfax Media’s A$2.7 billion purchase of Rural Press Ltd.

Seven Media’s magazine titles include New Idea and the Australian edition of Marie Claire and half of Australia’s second-most visited web portal through a venture with Yahoo Inc. West Australian also owns 21 regional publications in Western Australia and nine radio stations.

Seven Group owns Westrac, the sole Caterpillar Inc. dealer in Western Australia, New South Wales, Australian Capital Territory and north east region of China. It owns 24 percent of Consolidated Media Holdings Ltd., which has a 25 percent holding in Australia’s biggest pay television operator Foxtel.

To contact the reporters on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net Shani Raja in Sydney at Sraja4@bloomberg.net;

To contact the editors responsible for this story: Iain Wilson at iwilson2@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net

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