Clock ticking for Seven West Media to pay down debt

Time is running out for James Warburton and his lieutenants to put out raging fires at the Kerry Stokes-controlled media business.

Seven West Media chief executive James Warburton with media baron Kerry Stokes. Picture: Nikki Short

Time is fast running out for James Warburton and his lieutenants to put out the raging fires at the Kerry Stokes-controlled media business Seven West Media.

Mr Warburton, who was brought in by the Australian billionaire last August to rebuild the television broadcaster and publisher, has to cut the group’s $541m debt pile swiftly or it risks being at the mercy of its lenders.

Seven is understood to be in regular contact with its banks, keeping them up to date with its cost-cutting plans during the extremely difficult trading environment as advertising revenue tanks.

Seven’s saving grace during the COVID-19 crisis is big ratings wins over Nine in nightly news and morning TV with Sunrise over the Today program, and its digital offering has passed nine.com.au.

The young-gun media executive was hoping to get some much-need capital from the $40m sale of its magazines business to Bauer Media last Thursday. But that now won’t happen until May 1 at the earliest — if at all, given the now ­precarious position of the German family-owned magazine publisher in Australia.

It’s not surprising Bauer isn’t keen to complete the deal, particularly at the hefty price tag struck last October before the COVID-19 outbreak and economic damage

In a bid to cut Seven’s debt, which equates to 2.4 times its underlying earnings, Mr Warburton is cutting jobs and staff pay by 20 per cent, after abandoning its annual earnings guidance last month. Seven has also flagged ­tapping the federal government’s $130bn JobKeeper scheme. Mr Warburton was also looking to sell and buy assets as part of his plan to overhaul the company, which last year relinquished its crown as Australia’s No 1 commercial TV broadcaster back to Nine. Since taking over the helm from Tim Worner, Mr Warburton has axed half his direct reports and sold Seven’s Western Australian radio asset, Redwave Radio, to Southern Cross Media for $28m.

However, Seven’s proposed takeover of Prime Media for $64m was halted by media proprietors Antony Catalano and Bruce Gordon in December, which led to Seven buying a 14.9 per cent stake in the regional broadcaster.

Within the Australian media industry, outdoor ad group oOh!media was the first out of the gates last month to seek capital from investors amid the ad downturn, raising $167m to slash its $354.5m debt. TV and radio broadcaster Southern Cross Media is in the process of raising $169m to reduce its $330.5m debt.

Seven is understood to have eight banks: Australia’s four ­majors, two in China and one each in Singapore and in Japan. One saving grace of the current crisis is that nobody has an appetite to take control of the network.

Some bankers expect that Seven’s lenders may move soon to offload their debt to other parties. The new debt owners may then look to call in the loans of Seven, or restructure the group through a debt-for-equity swap.

This could in effect result in the new debt holders gaining control of Seven, as was the case with Nine when it came close to collapse ­several years ago.

Mr Stokes’s son, Ryan, chief executive of Seven Group, expects the magazine sale to go ahead, but he was tight-lipped on whether it would support a capital raising by the media group if required.

“I’d prefer not to talk about it in that context. At the end of the day, Seven West has put out its guidance and is working through its ­issues at the moment,” Ryan Stokes told The Australian.

The industrial, mining and energy conglomerate owns a 41 per cent stake in the media company.

Last Thursday, the day the high-profile $40m magazine deal was due to be completed, Seven and Bauer called a temporary halt to hostilities by agreeing to extend the completion date to May 1.

The extension came a day after Seven revealed it had started legal action in the NSW Supreme Court to compel the magazine publisher to complete the deal, which secured approval from the nation’s competition regulator on March 26. The action is listed to be heard at 9.45am on April 24.

In its brief statement to the ASX, Seven stressed “all other terms of sale are unchanged”, and noted the extended date was “not materially adverse” as it would now receive the April revenues.

The deadline extension comes as Bauer’s future in Australia ­remains under a cloud. The publisher is understood to be con­sidering exiting the market, which it entered in 2012 by acquiring ACP for $500m.

If the deal is consummated, it will unite Bauer’s 36 ­titles, including Australian Women’s Weekly and Woman’s Day, with Pacific’s stable of about 20 magazines, including New Idea and That’s Life.

Mr Warburton has an anxious 19 days to wait and see if the magazine deal with Bauer will be rubber-stamped and bring in some much-needed capital.

Mr Warburton declined to comment, and Bauer’s local boss, Brendon Hill, has remained silent on the likelihood of the deal going ahead, as well as his company’s ­future in Australia.

Seven’s TV program schedule for the year also looks weak compared with Nine, which took the early ratings lead with its hit reality show, Married At First Sight.

MAFS easily beat Seven’s My Kitchen Rules: The Rivals in recent months, while Seven’s new-look House Rules: High Stakes has received a lukewarm reception.

With Seven’s marquee sporting event, the AFL, on hold during the health crisis and the Tokyo Olympics postponed until next year, it will need to fill its air time with a raft of programs.

The postponement of the Olympics was expected to save Seven about $70m, but the broadcaster has remained coy about the financial impact.

It is also unclear what the fallout will be from the AFL’s suspension.

Seven’s shares closed at 6.2c on Thursday before, giving it a market capitalisation of $94m.

Additional reporting: Perry Williams and Bridget Carter