Seven West to bulk up with $65m Prime purchase

Seven West Media will look to create the largest news footprint in Australia after announcing plans to buy Prime Media.

Seven West Media CEO James Warburton. Picture: Nikki Short

Seven West Media will look to create the largest news footprint in Australian broadcasting after announcing plans to acquire regional broadcaster Prime Media.

Newly installed Seven West Media chief executive James Warburton described the deal, which values Prime at $65m, as a “game-changer” that would maximise reach for advertisers while benefiting shareholders.

The agreed acquisition is expected to trigger a new round of media deal-making and delivers Seven a network with a reach of more than five million across regional NSW, Victoria, the ACT, Western Australia and Queensland’s Gold Coast. There will be minimal impact on viewers as Prime is a long-time affiliate of Seven and the metro broadcaster has committed to keeping local news bulletins.

“This is a highly strategic move,” Mr Warburton told The Weekend Australian.

“It lets Prime shareholders be part of a bigger broadcast and digital broadcast video-on-demand solution, and for us it gives a superior and unmistakable offer over all the other players in the TV market,” he said.

The deal announced on Friday was foreshadowed by The Australian’s DataRoom column earlier this month, and is expected to generate about $11m in cost savings.

Mr Warburton and Seven West Media chairman and billionaire media mogul Kerry Stokes will lead the newly merged business. At the same time, Seven will sell its West Australian regional radio business, RedWave, to Southern Cross Austereo for $28m.

However, Seven’s plans for Prime could be slowed by a disruption from regional media player and former Domain boss, Antony Catalano, who is believed to be threatening to derail the takeover. Mr Catalano’s backer, Thorney Investments, holds just under 5 per cent of the regional broadcaster and is understood to have been an eager buyer to com­plement his regional newspaper business.

Some suggest the attempt will fail, as Seven West has change of control rights that can block any buyer of Prime through its affiliate agreement.

At the same time Bruce Gordon, the founder of the rival WIN regional network, has just under a 15 per cent stake in Prime.

Prime chairman John Hartigan described the offer as “compelling” and “attractive for shareholders and staff”.

“Our relationship with Seven has been long and fruitful and I've got a great deal of personal regard for Mr Warburton, and he’s already stated his intention to keep all the news bulletins, which are under significant pressure,” Mr Hartigan said.

“We’ve got one transaction in front of us and it’s a transaction that we believe is compelling and we know Seven very well. The two leading television players in the country from a regional and metro point of view coming together and servicing 90 per cent of Australia is a very strong argument to take to media buyers.”

It comes at a critical time for regional media players, which have been squeezed by the a downturn in earnings from the drought. At the same time viewers are migrating to online and on-demand broadcasts. Last year Prime generated $38m in pre-tax earnings on revenue of nearly $200m.

Mr Warburton said synergies would come from duplication of roles in sales and management, adding he had no plans to axe bulletins from regional areas.

“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.”

The Prime deal comes three weeks after Seven West announced a major restructure of its business, which saw about 180 jobs axed. It also comes as Seven continues discussions with German publisher Bauer Media over the sale of its magazine assets, with a deal worth $40m expected to be completed as early as next week.

A merged Bauer Media and Pacific would 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.

Meanwhile, the acquisition of RedWave 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.

Southern Cross chief executive Grant Blackley said RedWave would complement the business’s other regional assets.

“What that does is give us complete coverage out of regional Western Australia, which we previously haven’t had,” he said.

“(Regional media) are strong profitable assets and if we had the opportunity to buy more regional radio we will, as long as we can.”

Mr Blackley said the deal between Prime and Seven was not surprising, “completely logical” and would prove worthwhile for Seven.

“It will raise the question with Nine and Ten as to what they want to do, because you are going to have a point of difference with the Seven Network,” he said. “Media buyers like scale and simplicity.”

He did not rule out Mr Warburton attempting to purchase other parts of his business.

“[He] may. I’m just not sure what premium he wants to pay us. We have a strong audio platform, we are very comfortable … we have new streams of revenue forming,” he said.

“There is a very long and fruitful path forward. If Seven want to knock on the door, they are more than willing, they know our number, but they will need a reasonable cheque to entice our shareholders.”

Mr Warburton made his acquisition intentions clear at the company’s full year results in August, describing Seven as a “hunter” looking for opportunities in traditional media and non-traditional areas.

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

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

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. At market close, Seven West Media’s shares were at 38c, valuing the business at $580.59m.