Seven West Media to buy Prime Media and sell Redwave to Southern Cross

Seven West CEO James Warburton says his deal to buy rival Prime ‘makes us bigger than Facebook and YouTube’.

Seven West media chair Kerry Stokes and CEO James Warburton. Picture: Nikki Short

Seven West Media will buy regional broadcaster Prime Media Group, marking the first acquisition for the business by newly installed chief executive, James Warburton.

The deal will see Seven offer 0.4582 of its own stock for each share in Prime. Seven said the transaction would generate about $11 million in cost savings.

At the same time, Seven will sell its West Australian regional radio business, RedWave, to Southern Cross Austereo for $28 million.

The news comes two weeks after The Australia’s DataRoom column reported sources as saying that a merger between Seven West and Prime may have been under consideration and three weeks after Seven West announced a major restructure which saw about 180 jobs axed.

DataRoom | Private equity looks to pick up Southern Cross for a song

Mr Warburton told The Australian the deal with Prime would create Australia’s largest “news footprint” from a broadcast perspective, and would make Seven bigger than YouTube and Facebook, according to figures from Nielsen’s digital content ratings.

“It’s a game-changer,” Mr Warburton told The Australian.

“It lets Prime shareholders be part of a bigger broadcast and digital broadcast video on demand (BVOD) solution, and for us it gives a superior and unmistakable offer over all the other players in the TV market, and it makes us bigger than Facebook and YouTube, based on Nielsen DCR rankings,” Mr Warburton said.

The combined group would be led by Mr Warburton and chaired by billionaire media mogul Kerry Stokes. Mr Warburton said the larger company would have more sway with advertisers and media buyers, while being able to reach a monthly audience of 18 million people in Australia.

Mr Warburton said the new synergies would come from duplication of roles in sales and management.

“It’s duplicated roles. There’s a head office, there’s offices that have salespeople...there’s ASX listed costs, there’s board costs, there’s management costs,” he said.

“We’re extremely confident around synergies. We know the business well.”

On an investor’s call he said he had “no intention” of stripping news bulletins from regional areas.

Communications Minister Paul Fletcher said the merger was a response to the “changing conditions” of the media sector and recognised the need for media companies to evolve their business models.

“Consumers today can access an unprecedented array of content – from internet-based providers as well as television, radio and newspapers – and Australian media businesses need to adapt if they are to stay competitive,” Mr Fletcher said.

“Recognising these changing market conditions, in 2017 our Liberal National Government passed landmark media reforms to repeal the ‘75 per cent rule’ and the ‘2 out of 3 rule’ in the Broadcasting Services Act - and it is these reforms which make possible the merger announced today.”

Mr Warburton made his acquisition intentions clear at the company’s full year results in August.

“We will be a hunter and explore M&A opportunities in both traditional media and non-traditional adjacencies that are positive for our shareholders,” Mr Warburton said at the time.

For the full year Seven West Media booked net loss of $444.5 million, hurt by the writedown of its television licence and newspaper masthead.

This week Seven West confirmed it was in talks with publisher Bauer media to sell or merge its Pacific Magazine titles. The deal could see titles including New Idea, Who and Better Homes and Gardens under the same roof as Woman’s Day, Australian Women’s Weekly, NW and TV Week.

Mr Warburton told The Australian discussions with Bauer Media were still ongoing.

“We are considering a divestment of those assets at this particular point, and there appears to be strong interest in the market,” Mr Warburton said.

Seven West Media was advised by Stanton Road Partners, the company of former Morgan Stanley and Luminis Partners investment banker Peter Brownie, while Prime was self-advised.

The deal is subject to shareholder and regulatory approval.

Mr Warburton is not the first executive to acquire regional assets this year. Former Domain boss Antony Catalano acquired Australian Community Media in July for $115m.

Seven West Media’s shares were up 3.95 per cent at 11am, valuing the business at $595.67 million.Prime Media had a market value of $65.9 million at the conclusion of trading on Thursday. Southern Cross Austereo’s shares are up 5.2 per cent.

The acquisition by Southern Cross comes days after the business, which owns the Triple M and Hit Networks, brought forward its first-quarter trading update by nine days to report an 8.5 per cent drop in fiscal first-quarter revenue following “weak” media markets.

With Lilly Vitorovich, Bridget Carter.