A proposed $4.
085 billion transaction between Seven Group Holdings Ltd (SGH) and West Australian Newspapers Holdings Ltd (WAN) is poised to create the nation’s largest media company.
The deal, if approved by shareholders, would result in WAN becoming a diversified media company with assets in free-to-air and subscription television, radio and newspapers, online and magazine publishing.
It would trade under a new name – Seven West Media.
Moreover, it allows Kohlberg Kravis Roberts and Co (KKR) – the private equity firm that bought half of SGH’s television, magazine and online interests (known as Seven Media Group) in late 2006 – to begin the process of exiting that investment.
Through a complex series of transactions, WAN would acquire Seven Media Group for an enterprise value of $4.085 billion, including assuming about $1.65 billion of debt.
SGH would emerge with about 29.6 per cent of Seven West Media, up from its current 24.3 per cent stake in WAN, according to documents lodged by both companies on Monday.
Kerry Stokes, chairman of both SGH and WAN, said Seven West Media would create the largest listed Australia-domiciled media company.
“This combined company will be able to do things in Australia that we weren’t able to do before,” Mr Stokes said when the deal was presented to analysts and media in Sydney on Monday.
“This gives us the opportunities to take advantage of changing technology, both here and overseas.
Bringing together Seven Media Group’s assets – including the free-to-air Seven Network, Pacific Magazines and Yahoo!7 – and WAN was expected to result in $15 million in cost synergies.
These would come mainly from cross-selling opportunities, WAN said.
WAN chief executive Chris Wharton said the newspaper publisher’s participation in Seven’s SMG Red integrated advertising media arm had already generated $1 million in revenue.
“We believe there is some fantastic opportunities going forward there,” said Mr Wharton, who added WAN’s involvement with SMG Red was only on the West Coast.
WAN’s presentation said savings in Perth operating costs could be achieved through reduced duplication of news gathering.
Mr Stokes told ABC Radio there were no plans for retrenchments, newsroom rationalisations or changes in employment for any staff.
WAN publishes The West Australian newspaper and has a host of regional WA mastheads and radio stations.
Independent director Doug Flynn, who led the negotiations, said the acquisition “secured the long-term outlook of the company”.
“We believe the transaction is strategically compelling,” Mr Flynn said.
The deal was first mooted in August, Mr Flynn said, with negotiations between independent directors and Seven getting “pretty intense” around the end of November.
WAN shares were in a trading halt and last traded at $6.34, while Seven Group gained 21 cents, or 2.31 per cent, to $9.30.
The transaction is the second big deal Mr Stokes has undertaken in the past year, after he successfully merged Seven and his earthmoving equipment company WesTrac in 2010.
KKR will end up with about 12.6 per cent of Seven West Media and have the right to appoint a seat on the board.
Fat Prophets senior analyst Greg Fraser said KKR looked to have made a “nice step towards the exit door”.
“It’s probably easier to sell a 12.6 per cent stake in a bigger listed group than it is to sell the existing stake they have in Seven Media Group,” he said.
“Because it is already listed, all they have to do is find a trade buyer or a placement to institutions and they are gone.”
The sell down of KKR’s stake in Seven Media Group returns the spotlight to another private equity firm, CVC Asia Pacific, and its exit from Nine Entertainment Co, expected some time in 2011 and to take the form of an IPO.
As a related-party transaction, Mr Stokes cannot vote on the deal when it is put to WAN shareholders on April 11.
The proposed acquisition is also subject to Australian Competition and Consumer Commission scrutiny.