Capital raising allows Seven West Media to play ball

Kerry Stokes’s Seven West Media is eyeing the AFL’s record media rights and possible takeovers with a $612m capital raising.

Kerry Stokes and Tim Worner following Seven West Media's AGM in Sydney.

Media mogul Kerry Stokes has manoeuvred Seven West Media into a position to retain the AFL’s record media rights and mount corporate takeovers should the media laws change after undertaking a $612 million capital ­raising.

While Seven West Media chief executive Tim Worner said a recapitalisation of the company’s balance sheet was primarily aimed at paying down debt, he admitted the move gave him much-needed financial firepower in a fast-changing media landscape where it was getting tougher to deliver earnings growth.

“We are going to use the proceeds to pay down the debt,” Mr Worner told The Australian .

“However, we’re left with much greater flexibility on the balance sheet and that will give Seven ­options in case opportunities come along.

“While we don’t have any major transactions in mind, I think in the climate we’re seeing I’m sure opportunities will come along. It would be irresponsible of us not to be looking, and this puts us in a position where we can look at ­opportunities should they arise.”

The TV, newspapers, digital media and magazines company is strengthening the balance sheet, which is groaning under the weight of a $1 billion debt pile, through the early conversion of 266 million convertible preference shares (CPS) at $1.28 per share.

The conversion is roughly one year earlier than the redemption date, easing a major concern for shareholders, including Mr Stokes’s diversified investment firm Seven Group, which currently owns a little over one-third of Seven West.

Seven West has also proposed a separate capital raising for minority shareholders. The accelerated non-renounceable entitlement offer at 2.27 for every three shares is open to all shareholders excluding Seven Group at $1.25 per share. Investment bank UBS has underwritten $150m of the raising.

“We’re greatly encouraged by the indications we’ve had from our major institutional holders,” Mr Worner said. “The good thing about this scheme is that it allows all non-Seven Group shareholders to acquire Seven West shares on the same basis as Seven Group but at a better price.”

Depending on the take-up by institutions under the offer, Mr Stokes’s Seven Group could increase its current holding from 35 per cent to a maximum of 45 per cent.

Media analysts welcomed the decision to address the overhang of the convertible preference shares. “The proposed transaction would provide Seven West with a stronger balance sheet and resolve our concerns around the outcome of the CPSs,” Goldman Sachs analyst Christian Guerra said.

Despite weak demand for advertising in the media sector, Seven West reaffirmed earnings guidance in a trading update that received a positive response. City analyst Justin Diddams said: “This is encouraging given the weak advertising backdrop.”

Amid persistently flat conditions in the advertising market, Seven is facing cost inflation as programming gets more expensive and the AFL prepares to auction its coveted media rights.

The code has big ambitions of securing the richest sports deal in the history of Australian television, which will force Seven to pay more money in the next round of negotiations.

Yesterday, Seven announced it had secured exclusive live rights to broadcast the soccer match between English Premier League leaders Chelsea and A-League side Sydney FC at ANZ Stadium on June 2.

Although Mr Worner said he did not expect the Abbott government to relax Keating-era media regulations in the near future, he wanted the “flexibility” to consider merger and acquisitions “if opportunities arise”.

The media laws were “ not the reason we’ve done this today,” he said. “It’s about removing an increasing level of uncertainty, getting our balance sheet cleaned up and having a simplified capital structure.”

The raising comes just one week after Seven’s closest peer, Nine Entertainment, sold its events business in a $640m deal ahead of a possible takeover of regional TV and radio group Southern Cross Austereo, raising the stakes in the ratings fight and advertising dollars.

Mr Worner will now turn his attention to keeping a tight control on operating costs, and continuing to eye off attractive early-stage investments in fast-growing media businesses that complement the main television network. Recent moves include an internet streaming service, online video, big data and events.

“Our company has changed more in the last 18 months than it has in the preceding 18 years.”