Seven West Media’s Pacific Magazines heads to court to finish Bauer deal

Pacific Magazines is taking Bauer Media to court to wrap up the $40m acquisition of its magazine business.

The magazine business consists of about 20 mastheads such as New Idea and That's Life.

Seven West Media has started legal action against Bauer Media to force the German family-backed company to complete the $40m acquisition of its magazine business, as the Kerry-Stokes-controlled group grapples with a $541m debt pile and deteriorating advertising revenue during the coronavirus crisis.

After weeks of uncertainty surrounding the sale of Pacific Magazines to Bauer, Seven disclosed on Wednesday that it had started court proceedings in the NSW Supreme Court on Tuesday to compel the magazine publisher to complete the deal.

In response to a query from the ASX, Seven said the deal, which was struck last October, is “being pursued to completion”, noting that the contract is unconditional following the Australian competition regulator's clearance last month.

Seven said it had received any email from Bauer’s solicitors saying “Bauer is aware of its obligations under the Sale of Business Agreement and, as you know, has been actively engaging since October 2019 in preparing for completion”.

Seven’s legal move comes as the future of Bauer in Australia is up in the air, with the magazine publisher understood to have hired EY to review its business following the closure of its New Zealand operations last Thursday.

Bauer is considering exiting the market, which it entered in 2012 by acquiring Kerry Packer’s ACP Magazines for $500m, as part of the strategic review by accounting and advisory firm EY’s Stewart McCallum.

The company has remained tight-lipped on its Pacific plans since the deal was given the green light by the Australian Competition & Consumer Commission on March 26, with chief executive Brendon Hill not returning calls seeking comment on the merger.

Kerry Stokes’ son Ryan Stokes, who is chief executive of Seven Group, expects the magazine deal to go ahead.

"We anticipate that. I think our position has been pretty public on that, so I won't comment any more that was has been said from James and the team," he told The Australian.

Industrial, mining and energy conglomerate Seven Group owns a 41 per cent stake in the Sydney-based media company.

Pacific Magazines’ outgoing boss Gereurd Roberts is understood to have emailed staff on Wednesday morning about the court case, telling them that the sale might go through as planned on Thursday. But if it doesn’t, they will be at Pacific for another four to six weeks.

Mr Roberts was appointed Seven’s digital boss following the magazine deal, which would see Bauer’s 36 titles, including Women’s Weekly and Woman’s Day come together with Pacific’s stable of around 20 magazines, including New Idea and That’s Life.

Seven, like the broader Australian media industry, is hurting from the accelerated drop in ad revenue from the economic slump during the COVID-19 crisis. But its massive debt pile, which equates 2.4 times its underlying earnings, makes things much more difficult. That compares to a market capitalisation of just over $91m.

It is understood that Seven met with its bankers before it abandoned its guidance on March 24.

At the time, Seven warned its visibility of future ad bookings was “now insufficient to provide meaningful earnings guidance for the remainder” of the 2020 financial year.

Prior to the economic turmoil from COVID-19, Seven was betting that the AFL and the Tokyo Olympic Games would deliver big TV and streaming audiences, and in turn boost its depressed ad revenue.

Mr Warburton was also looking to sell and buy assets as part of his plan to overhaul the company, which last year lost its crown as Australia’s No 1 commercial TV broadcaster to Nine.

Seven sold its West Australian regional radio business, RedWave, to Southern Cross Media for $28 million last December, but its proposed $64m takeover of regional broadcaster Prime Media failed after Antony Catalano and Bruce Gordon blocked the deal. Instead, Seven had to settle with buying a 14.9 per cent stake in Prime.

Seven on Wednesday also ruled out the sale of its West Australian newspapers following a report in The Australian Financial Review, which it described as “not correct”.

Seven’s legal action against Bauer has been filed in the Supreme Court in Sydney and is listed to be heard on April 24 at 9.45am, according to the NSW Online Registry for courts and tribunals.

Additional reporting: Perry Williams