New talk of a Seven acquisition of Prime emerges

Seven West Media CEO James Warburton. Picture: Nikki Short

Seven West Media boss James Warburton may have an acquisition of Prime Media back on the agenda, sources say.

The news comes as speculation mounts that the Kerry Stokes-backed media empire remains eager to sell its magazines.

It is understood no talks have yet taken place between Prime and Seven West.

However, Seven West declined to comment on its intentions with Prime.

Should an acquisition be in the works, as has been suggested, the challenge for Mr Warburton will be convincing major shareholder Bruce Gordon to sell shares in Prime, along with Spheria Asset Management, which holds 14.42 per cent, according to Bloomberg.

While the exact size of Mr Gordon’s stake is not entirely clear, it is believed he holds close to 19 per cent with his own shares and exposure through a Deutsche Bank derivative.

Both are believed to have enough stock to block any deal proceeding.

However, if Mr Warburton offers a high enough price, the thinking is major Prime shareholders could be swayed.

Mr Warburton could embark on an acquisition using Seven West Media scrip in a transaction that may actually improve the company’s debt position.

While it is known Mr Warburton’s appetite is strongest for digital assets, Prime is seen to be the low-hanging fruit for the recently appointed chief executive when it comes to a deal.

A bonus for Seven West, should a deal get done, is that it would lower its debt ratio.

The thinking among some is that Seven West could offer up $120m to get backing for a deal.

One possibility is that, at the same time, Seven West could be making moves to offload its Pacific magazines business, which owns a raft of titles including New Idea and Marie Claire. The logical buyer is Bauer, but it remains unclear whether it would be an eager suitor.

It is thought that, should a transaction occur, it would be for a nominal sum as magazines are one of the greatest victims to digital media disruption.

Seven West’s debt remains at $564.4m and its market value is $595.67m.

Mr Warburton previously ran Seven West’s rival, the Ten Network, and stepped down from the top job at APN Outdoor last year when it was acquired by JC Decaux.

Following that, he was privately spearheading a plan to buy Prime with a private equity firm and CVC. Those plans were abandoned when he was hired to run Seven West.

A raft of major job cuts at the free-to-air network have recently been announced under Mr Warburton’s watch, and the opportunity with Prime could be through generating greater synergies through more back-office job cuts.

Hurting Prime are the large affiliation payments it is forced to pay to Seven West for content. Its market value sits at $64m.

While Kerry and Ryan Stokes are known to be eager sellers of Seven West should a buyer approach, few suitors are thought to exist given the company does not own any digital assets to offset declining newspaper and free-to-air broadcasting earnings.

Seven trades on only about three times its earnings, which would make almost any other acquisition dilutive, with Prime being the exception.

Prime Media posted a $7.3m net profit for the year to June, as its earnings before interest, tax, depreciation and amortisation fell 14.8 per cent to $38.5m.