Kerry Stokes’ merger of WesTrac with his publicly-listed media company Seven Network will create a $2.6 billion diversified entity to be known as Seven Group Holdings Limited.
Media mogul Kerry Stokes will merge his private business empire WesTrac with his publicly-listed media company Seven Network in a deal that will create a $2.6 billion diversified entity to be known as Seven Group Holdings Limited.
The all-shares deal will also see Stokes tighten his grip on Seven, by increasing his shareholding in the merged entity to about 68%, up from the current level of his current 48% stake in Seven Network.
The deal will provide wealth watchers with unprecedented insight into the notoriously media-shy Stokes’ private empire.
WesTrac specialises in mining equipment and heavy machinery and was established by Stokes’ private company Australian Capital Equity in 1990. The company has three major assets: the rights to distribute Caterpillar heavy machinery in NSW, Western Australia, ACT; a Chinese company which is one of only four Caterpillar distributors in that country, and a 66% stake in Australian equipment hire business National Hire (which in turn owns 46% of Coates Hite).
Seven Network owns a stake in Australia’s leading commercial television channel, the Pacific Magazines business, 23% of West Australian Newspaper Holdings and 22% of Consolidated Media Holdings, which owns 25% of Foxtel and 50% of Premier Media Group.
The two companies have valued WesTrac at $2 billion (including $1 billon of debt). Seven says that based on WesTrac’s forecast EBIT for the 2011 financial year of $192 million, WesTrac has been valued on a multiple of 9.43 times.
Australian Capital Equity will receive shares in Seven Group Holdings in return for selling WesTrac. There is no cash component to the deal.
Stokes, who will remain executive chairman of the new group, released a short statement on the deal.
“Seven and WesTrac Group are two great companies. Both are performing strongly and both have terrific opportunities for growth. We have had a long and proud association with both companies, which are both leaders in their respective areas, with what I consider the best management teams in the country.”
According to Seven, the deal is designed to help it diversify away from the traditional media sector, which it admits are under huge pressure from online competitors.
“The Seven directors have conducted a comprehensive review of potential media and telecommunications segment transaction opportunities for Seven and have concluded that the value-enhancing opportunities are limited,” the company said in a statement.
“The transaction substantially repositions Seven from an investment holding company to part of a diversified operating group owning market leading businesses with attractive growth outlooks, while retaining full upside to existing strategic investments. The merger provides access to assets that underpin a long-term growth profile via exposure to Australian resources and the Chinese economy.”
To ram home this point, Seven is predicting a 20% jump in earnings per share in the 2011 financial year.
The proposal will be put to shareholders in mid-April.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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