Billionaire Kerry Stokes has merged his holding companies to move further out of media through an all-share merger of heavy equipment firm WesTrac and Seven, which owns part of TV broadcaster Seven Network.
Mr Stokes will end up with a 68 per cent stake in the combined group, up from 48 per cent in Seven now, in his latest move to diversify after selling more than half his media interests to private equity group Kohlberg Kravis Roberts in 2006.
Seven shares, meanwhile, slumped as much as 7.6 per cent, before ending the day down 38 cents, or 5.2 per cent, at $6.98.
The new entity, Seven Group Holdings, will hold its stake after 115 million new shares are issued to his Australian Capital Equity, the Sydney-based company said in a statement today. Based on an implied price of $8.70 a share, the deal values WestTrac at $1 billion and Seven will also assume about $1 billion of debt.
The deal transforms Seven from a company with less than $100 million in revenue to an operating business with sales of $2.8 billion, three years after Stokes sold control of his media assets to a venture with buyout firm KKR & Co. It adds Caterpillar dealerships in two Australian states and northeast China to minority stakes in Australia's most watched television network, the second-largest magazine publisher, as well as newspaper and pay-television assets.
''Stokes wants to steadily build market awareness and familiarity with the WesTrac business while both the media and WesTrac businesses are in the midst of an ongoing cyclical upswing,'' Angus Gluskie, who oversees more than $300 million at White Funds Management in Sydney. The strategy may ''deliver good value to both Stokes and Seven shareholders, while also creating avenues to obtain funding for acquired growth opportunities.''
Property, resources, media
Stokes, 69, is Australia's ninth-richest person, with a fortune of more than $1 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.
In 2006, he raised $3.2 billion by selling about half his media assets to the venture with New York-based buyout firm KKR, taking advantage of changes to Australian ownership laws.
Consolidated Media stake
Since then Seven has added minority stakes in Consolidated Media Holdings, which owns 25 percent of Australia's largest pay television company, and West Australian Newspapers Holdings, publisher of Perth's sole daily.
''The Seven directors have conducted a comprehensive review of potential media and telecommunications segment transaction opportunities for Seven and have concluded that the value-enhancing opportunities are limited,'' the company said in a statement. ''The merger provides access to assets that underpin a long-term growth profile via exposure to Australian resources and the Chinese economy.''
Existing Seven Network investors will receive one share in Seven Group for each share they already own. Seven shareholders will vote on the transaction at a meeting expected to be held in mid-April, the company said.
The enterprise value price for WesTrac implies a multiple of 7.8 times estimated 2011 earnings before interest, tax, depreciation and amortization, according to the statement.
Three-year wait
Investors have been waiting for more than three years for Seven to make new investments, and directors said today this was the best deal possible.
"The Seven directors have conducted a comprehensive review of potential media and telecommunications segment transaction opportunities for Seven and have concluded that value-enhancing opportunities are limited," Seven said in a statement this morning.
Seven highlighted the growth potential for the new holding company, Seven Group Holdings, in the resources industry through WesTrac, which sells Caterpillar construction and mining equipment in Australia and northeast China.
"The merger provides access to assets that underpin a long term growth profile via exposure to Australian resources and the Chinese economy," the group said.
Seven Group will also own two-thirds of National Hire, which is a major shareholder in Australia's biggest equipment rental business, Coates Hire.
For existing Seven shareholders, the merged group will boost earnings per share by more than 20 percent from the 2011 financial year, it said.
WesTrac is a wholly-owned unit of Australian Capital Equity (ACE), which Stokes also chairs.
In return for all of WesTrac, ACE will receive 115 million shares in Seven Group Holdings, which it said valued Seven at $8.70 a share, an 18 per cent premium to Seven's last trade.
JP Morgan and Grant Samuel advised Seven, while Goldman Sachs JBWere advised ACE.
Reuters, Bloomberg News
