Investors in Seven West can buy one new share at A$1.32 each for every two they already own, the Perth, Western Australia-based company said today in a regulatory statement. That’s 19 percent less than the A$1.62 closing price on July 13.
Seven West, controlled by billionaire Kerry Stokes, is raising cash as advertising revenues slump amid weak consumer spending. Bookings for commercials on free-to-air television in Australia’s cities fell 4.1 percent from a year earlier in the 11 months to the end of May, JPMorgan Chase & Co. analyst Jarrod McDonald said in a June 15 note to clients quoting data from research firm Standard Media Index.
“The key risk for Seven West remains the relatively high level of debt financing, given the current economic outlook,” Justin Diddams, an analyst at Citigroup Inc. in Sydney, wrote in a June 26 note to clients. Seven West is Australia’s largest free-to-air television channel, with about 40 percent of the market, and publishes Perth’s sole daily newspaper.
Seven West’s shares have fallen 74 percent since its predecessor West Australian Newspapers Holdings Ltd. announced plans to buy the television station out of Stokes’s Seven Group (SVW) Holdings Ltd. last February. The company was renamed Seven West Media after the transaction.
The company’s largest shareholders, Seven Group and KKR & Co. (KKR), will buy shares matching their existing stakes of 33 percent and 12 percent, the company said.
Seven Group shares fell to a seven-month low, slipping 1.2 percent to A$6.70 at the close of trade in Sydney. The benchmark S&P/ASX 200 index rose 0.6 percent. The company will have to spend about A$146 million buying new Seven West stock based on its shareholding.
Seven Group’s own debt levels “weigh on the stock given current market sentiment”, Royal Bank of Scotland Plc. analyst Matthew Nicholas wrote in a note to clients July 2.
The funds will allow Seven West to cut its net debt from A$1.9 billion to A$1.4 billion, the company said. That compares with earnings before interest and tax of A$473 million the company said it earned in the year ended June 30.
The company “is trading well within the covenant levels of its senior facilities” and after the share sale net debt will be about 2.7 times earnings before interest, tax, depreciation and amortization, Seven West said.
“There’s a lot of concern in the market about any companies that don’t have strong balance sheets,” Geoff Driver, general manager of investor relations at Australian Foundation Investment Co., said in a phone interview July 10. The Melbourne-based fund manager is Seven West’s third-largest shareholder with a 1.7 percent stake, according to data compiled by Bloomberg.
Australian companies raised A$4.5 billion in additional shares in June, according to Australian Securities Exchange data. Ten Network Holdings Ltd., the nation’s third-most watched TV broadcaster, announced a A$200 million share sale June 6, while Echo Entertainment Group Ltd., operator of Sydney’s only casino, announced a A$454 million raising June 15. Pallet supplier Brambles Ltd. announced a A$448 million rights issue June 4.
“The capital raising is not a reflection of a change in trend” in advertising markets, Seven West Chief Financial Officer Peter Lewis told a conference call after the announcement today. “It’s very much about solidifying the balance sheet.”
Excluding the shares bought by Seven Group and KKR, the offer has been underwritten by units of Commonwealth Bank of Australia, Goldman Sachs Group Inc., JPMorgan Chase & Co., and UBS AG, according to a separate filing. The banks will together collect fees worth up to about 2 percent of the shares sold to other investors, worth about A$4.8 million.
Underwriters promise to buy shares that go unsold in an issue of new stock.
The raising comes less than three weeks after Seven West named Don Voelte, a former head of Woodside Petroleum Ltd., as chief executive officer to succeed David Leckie.
Seven Group is also considering whether to buy more shares in Consolidated Media Holdings Ltd. or accept an offer for its 24 percent stake from News Corp.
Seven West shares, suspended today, are due to resume trading July 19.
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