The deal sees KKR pay A$735 million for a 50% stake in a venture to be called Seven Media Group which will own SevenÆs television, magazines and online businesses. The other 50% of the venture will be held by Seven Network, a diversified media company which is 43% owned by media magnate Kerry Stokes. Stokes, along with Rupert Murdoch and James Packer, form a triumvirate that controls most of AustraliaÆs media.
KKR approached Seven following James PackerÆs success last month in selling half of Publishing and Broadcasting LimitedÆs (PBL) television and magazine interests to CVC Asia Pacific for A$4.5 billion. It is thought that KKR was among several bidders for PBL that lost to CVC.
Sources close to the Seven deal say a founding partner at KKR, George Roberts, visited with Kerry Stokes while in Australia in relation to the firmÆs bid for Coles Myer, and signed an engagement with Seven Network four weeks ago.
Seven Network was advised by Morgan Stanley, while KKR used Sydney-based boutique OÆSullivan Pullini. Morgan Stanley is also one of four banks underwriting a A$2.5 billion debt facility that forms part of the cash component of KKRÆs bid.
Sources say KKR paid 13x forward Ebitda for its stake in Seven Media Group, a higher price than the 11.5x multiple paid by CVC Asia Pacific for its deal with PBL. ôThe other difference between the two deals is that KKR and Seven have struck a true partnership that wants to own and operate media businesses. Packer is using the money from his deal to buy casinos in Russia,ö says one source.
If the partnership line is true, then Seven Network and KKR will have great buying potential in the future. Stokes himself has a cash box of A$3.2 billion following the transaction. ôIf you add this to KKRÆs equity and then leverage that amount by three to four times, then Seven Media Group has about A$15 billion to A$20 billion to spend on media assets,ö says the source.
AustraliaÆs media barons have been jostling for position since the government ratified new cross-ownership laws that will come into effect next year. Two obvious acquisitions are newspaper groups Fairfax Holdings and West Australian Newspapers. Seven Network already holds 14.9% in West Australian Newspapers û a stake it bought via a stockmarket raid orchestrated by Citigroup a month ago. At about the same time, Rupert Murdoch used Goldman Sachs JBWere to conduct a similar raid on Fairfax, purchasing 7.5% of that companyÆs shares on-market.
Since the new media laws havenÆt yet been implemented, the PBL and Seven deals have been struck using converting securities in order to avoid breaching existing cross-ownership laws. ôThere has been no sale of equity at this stage,ö says the source.
The leveraged finance facility being underwritten by Citigroup, Goldman Sachs, Mizuho and Morgan Stanley has a six-year tenor and a total size of A$3 billion, of which A$2.5 billion is being drawn down. It will be sold into the secondary market over the coming month.
KKR has been involved in another multi-billion dollar bid for an Australian company, as part of a private equity consortium that offered A$18.2 billion for retailer Coles Myer. The offer, which had already been increased once, was rejected by the Coles Myer board on October 20 at which point the consortium walked away from the transaction. It appears however, that since the engagement with Seven was signed four weeks ago, the failure of Coles Myer had no bearing on KKRÆs preparedness to do another large transaction in Australia.
Seven NetworkÆs shares traded up A$1.22 or 11.5% to A$11.80 on Monday following the deal announcement. The broader market, meanwhile, dropped 97.3 points or 1.8%.
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