THE Federal Court is the last remaining obstacle to a $3 billion merger of Perth billionaire Kerry Stokes WesTrac heavy equipment business and the Seven Network, following overwhelming approval of Seven’s minority shareholders this week.
At a meeting in Sydney on Tuesday, almost 90 per cent of all shares voted by minority shareholders were cast in favour of Mr Stokes’ plan to sell WesTrac to Seven for $1 billion in shares and the assumption of $1 billion in debt carried by the Caterpillar dealer.
The scheme of arrangement, which will lift Mr Stokes’ stake in Seven from 48 per cent to 68 per cent, will now be put before the Federal Court for formal approval on Friday, enabling the scheme to take effect by the end of the month.
Shareholder support came despite recommendations from corporate governance advisory firms Glass Lewis and RiskMetrics Australia to reject the plan because it would place minority shareholders even more at the whim of Mr Stokes.
But success was virtually assured when Seven’s two largest institutional shareholders, Ausbil Dexia and Perennial Value, agreed to back the deal last week after Mr Stokes pledged to forego 15 million Seven shares should WesTrac fail to meet its forecast earnings next financial year.
Together the two funds managers hold about 14 per cent of Seven, and accounted for 30 per cent of shares able to be voted at the meeting.
The guarantee means Mr Stokes’ Australian Capital Equity faces a $130 million hit unless WesTrac generates pre-tax earnings of at least $231 million in 2010-11.
Mr Stokes said he was “greatly appreciative” of shareholders’ support for the deal, which he believed would provide strong growth opportunities for all Seven shareholders.
Despite initial concerns over the unlikely marriage of a conventional media business with a debt-laden heavy equipment group, Seven investors have warmed to the opportunity to secure direct exposure to both WA’s resurgent mining boom and the rapidly expanding Chinese economy.
WesTrac is the exclusive Caterpillar dealer in WA, north-east China, New South Wales and the Australian Capital Territory, and is forecast to turnover more than $2.7 billion in FY2011. In comparison, Seven’s conventional media business was forecast to turnover $96 million in the same period.
Investor focus will now turn to Seven’s next move, given incoming chief executive Peter Gammell’s stated aim to “build synergistically around the two businesses that we have”.
Analysts have suggested a fresh tilt at the James Packer-controlled Consolidated Media Holdings, of which it now owns 22 per cent, could be an option.
