Seven Group’s Stokes rules out rival takeover bid for Fairfax

Seven Group Holdings chief executive Ryan Stokes has said that media deals are not a priority for his shareholders.

Seven Group Holdings chief executive Ryan Stokes said media deals were not a priority for his shareholders, in his first public comments on rival broadcaster Nine’s $3.86 billion merger with Fairfax Media.

Days after new figures revealed the advertising market for television has rebounded, Mr Stokes said Seven Group-controlled Seven West Media could prosper without pursuing M&A transactions, and that he would only consider deals with a strong growth rationale that made strategic sense.

Mr Stokes effectively ruled out the prospect of Seven West Media mounting a counter bid for Fairfax after the two companies were the subject of speculation about a possible tie-up as Fairfax tried to sell itself in recent months.

“We’ve got a strong business and we will continue to build on that. The notion of consolidation makes sense where you can leverage that scale to create value,” Mr Stokes told The Australian yesterday. “That’s where I think there are potential opportunities, but there’s certainly no necessity out there to do a deal in response to Fairfax and Nine. If they are trading that premium to get a bigger business then that makes sense for them. We don’t have a competitive concern. I wish them well integrating their businesses and trying to make that successful.”

Nine’s proposed takeover of Fairfax’s newspapers, radio stations, online media businesses and the 50 per cent of streaming service Stan that it doesn’t already own has heightened speculation that the transaction could set off a deal frenzy as media companies and new entrants try to stake their claim on the digital future. Nine unveiled the deal last Thursday.

Adding to expectations of further media transactions, The Australian’s publisher News Corp has fielded pitches from investment bankers in recent months to acquire Seven West Media, which is 39.8 per cent owned by Seven Group.

Sources inside News Corp said the company remained focused on the merger of Foxtel and Fox Sports in addition to partnerships with other media companies to build platforms for long-term growth.

They said cost benefits and a broader customer base could be achieved without owning assets, pointing out that News had partnered with Seven in sports rights and recently signed a deal to provide Fairfax with printing services in two states.

The comments by Mr Stokes comes as the premium offered by Nine to Fairfax shareholders has been eroded, although Nine’s stock recovered yesterday, finishing up 2.7 per cent at $2.30.

Some shareholders in Fairfax are uncomfortable about diluting their stake in fast-growing property listings business Domain for the small premium being offered by Nine.

Speaking at an industry event on Wednesday evening, Seven West Media chief executive Tim Worner also downplayed talk about mergers in comments that recognise the difficulty of doing deals in a rocky climate for media mergers. Asked whether Nine’s bid for Fairfax would prompt Seven to seek a dance partner, Worner quipped: “We can continue to get by with no mates.”

Mr Stokes gave a bullish outlook for Seven and the broader free-to-air TV market as the health of the ad market improves.

Ad-spending in the free-to-air market increased 3.81 per cent to $1.36 billion in the six months to June, according to the latest KPMG figures — a big reversal from the past few years. “The industry is fundamentally in good shape. There’s no desperation out there and the ad market is feeling more buoyant,” Mr Stokes said.

Mr Stokes contends that TV networks are “doing a better job” of promoting the innate power of TV. Coupled with persistent questions about fraud in the online ad market and problems plaguing Facebook and Google’s YouTube, Mr Stokes said advertisers were flocking back to a tried and true medium.

“More advertisers are recognising the importance of brand building and the role that traditional media plays in that context. It’s great to see money flow back into free-to-air now. There’s greater recognition of its power as a vehicle for advertisers.”

As broadcasters get closer to negotiating annual agency-volume deals for 2019 with media-buyers, Seven emerged as the big winner in the latest statistics on ad-spending. After an unconvincing first six months of the 2018 financial year, Seven recovered lost ground this year on the back of stronger TV ratings to win the biggest share of ad dollars in the second half — a 39.91 per cent share of the market. Shares in Seven West Media finished 1.20 per cent higher at close yesterday, up 1c to 84c.

The result shows the momentum is with Seven despite a rejuvenated Nine, which took a 37.04 per cent share in the six months to June. Mr Stokes said live sports, as well as news, would be a large part of Seven’s future as both forms of TV were immune to ad-free services such as Netflix.

Recently Seven invested heavily in live sport, signing a six-year $1.18bn media rights deal with Cricket Australia as part of a partnership with Fox Sports.

“Cricket is going to be a really pivotal sport for us, much like AFL through the winter. It will be a major platform for Seven, and we will work closely with Fox Sports and Foxtel on furthering the sport and making cricket even more attractive for fans and advertisers alike.”