Stokes on top with media play

In a year when big deals were few and far between, the $4 billion acquisition by the Kerry Stokes-controlled WA Newspapers Holdings to buy most of his other media assets was something of a standout.

There has been no shortage of critics of the deal announced at the start of the year, barely allowing the dust to settle from Mr Stokes’ previous deal to sell his Caterpillar equipment franchise, Westrac, into the listed company he owned, which also controlled Channel Seven.

In May, WA Newspapers paid $4 billion in cash, shares and debt appropriation to acquire Channel Seven to form Australia’s biggest media company, Seven West Media. The deal was sold on the basis of synergies and giving shareholders in the newspaper business diversification.

Mr Stokes has become a far more familiar face in WA these days as the fight to control WA Newspapers and the merger with Seven have made him the corporate face of the company. 

The Westrac sale in  2010 and a foray into mining with Iron Ore Holdings have also highlighted in some detail his exposure to the WA resources sector.

Even more recently, his strategic property holdings have also attracted attention.

Mr Stokes’ other main listed vehicle, Seven Group Holdings, owns the Entertainment Centre site which sits at the western end of the major City Link project.

SGH has contracted property development group Leighton to develop the site with up to four high-rise towers, the first of which will sit on an extension to the existing Kings Street.

The centre was previously central to earlier Channel Seven Perth plans to move into the CBD from its Tuart Hill headquarters. 

The move to merge WA Newspapers and the Seven media assets pushed $2 billion in debt off the books of SGH, which retained Westrac as well as a big stake in SWM.

While the size of the debt has attracted a lot of commentary, analysts don’t appear to blame it as a major factor in SWM’s poor share performance since the deal was announced, with the price dropping by about half to around $3.30 each at the start of this week.

BBY media analyst Mark McDowell said that much of the media sector had been treated as badly or worse by the markets, including some newspaper owners which had actively sought to reduce debt.

Furthermore, Mr McDowell said the market had not reacted to recent news that SWM had renegotiated its major debt facilities, which suggests that investors were not focused on the issue.

On the flip side, he said that The West had performed solidly enough when most newspapers were suffering and Channel Seven was a quality asset, retaining a clear ratings advantage that would help it achieve revenue gains.

Mr McDowell said one biggest perceived issues facing the company was succession plans for CEO David Leckie, even though he believed the rest of SWM’s management team was capable and experienced.

He also said SWM might be challenged to deliver on its promise to maintain dividends as well as pay down debt, especially if the economy softened further.

Mr McDowell’s view was that investors’ antipathy towards media stocks had created cheap prices, with SWM representing better quality than most.

“That has opened up unusually cheap share prices for stocks with quality earnings and quality assets and that is a strong buy signal for us,” he said.

The action in media was not all around The West and Seven.

Last year, iron ore magnate Gina Rinehart bought into another national broadcaster, Ten Network, and took a seat on the board.

Ms Rinehart was officially elected to the board at Ten’s annual meeting and joins a list of who’s who linked to the television station.

Ten is being run by Lachlan Murdoch, son of News Corp chairman Rupert Murdoch, but also has major investors such as fast-food entrepreneur Jack Cowin and, most recently, interests associated with Mr Stokes.

Across at the third national commercial station, Channel Nine, billionaire James Packer has denied he is interested in rebuilding his stake in the company, which was controlled by his family for decades.

Mr Packer is focused on gaming, including in WA where his ownership of the Burswood Casino received a boost in the form of the state government’s desire to build a football stadium on the entertainment venue’s associated golf course.