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Home / Business / The money or the box: Kerry Stokes faces stark choice in bid to save Seven

The money or the box: Kerry Stokes faces stark choice in bid to save Seven

This week media and mining magnate Kerry Stokes proved there is a different set of rules for billionaires. In spite of WA Premier Mark McGowan’s declaration there would be zero exemptions on the state’s tough COVID-19 quarantine restrictions on international arrivals, it was revealed Stokes and his wife were allowed to serve out their self-isolation at home in their Perth mansion, owing to Stokes’ health issues, after they left the Beaver Creek ski resort in the Colorado mountains.

But it turns out Stokes’s Seven West TV and newspaper empire isn’t blessed by the same immunity that protects its chairman. The company, which employs 4000 people, is among the 275,000 Australian businesses to register for the federal government’s JobKeeper wage subsidy.

To qualify Seven West would have had to demonstrate a more than 50 per cent decline in revenue since the start of the COVID-19 crisis. The company, which labours under a half billion dollar debt, is in deep trouble – just nine months after new CEO James Warburton boldly declared its new era as a “corporate predator”.

Stokes’ decision to appoint Warburton to the top job at Seven West in August last year shocked the media industry. The supremely confident former ad-man left Seven in 2011 for rival Ten in deeply acrimonious circumstances. His return suggested Stokes had finally shaken off sentimentality after years of standing by Warburton’s predecessor Tim Worner through a decline in the network’s performance and a salacious sex scandal that was ultimately dropped.

Over three decades Kerry Stokes has demonstrated mastery in restructuring his corporate empire - now the 79-year-old has to do it all over again.

Over three decades Kerry Stokes has demonstrated mastery in restructuring his corporate empire – now the 79-year-old has to do it all over again.Credit:Andrew Quilty

Yet Seven West, in the grip of the coronavirus pandemic which has cruelled the entire media industry, is now in deep trouble. As Stokes was racing home from his Colorado chalet, Warburton was telling big-name stars such as Sunrise hosts David Koch and Samantha Armytage they would have to take part in a company-wide 20 per cent pay cut. There is talk of significant job cuts – up to 300 redundancies – coming soon.

Seven Network’s revenue was 16 per cent lower in March than it was a year earlier. In February it was 23 per cent lower than it had been in the same month in 2019, according to data compiled by industry body Think TV. COVID-19 has killed the network’s marquee sports programs, the AFL and the 2020 Olympics for the year – which will place additional pressure on advertising revenues in April. The television, magazines and newspaper company, whose share price was sitting at 48 cents in November last year, now trades at a beaten down 8.7 cents – a national media empire worth a paltry $130 million.

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The coronavirus pandemic has also torpedoed the company’s planned escape route – to undertake hundreds of millions of dollars in asset sales and use the proceeds to pay down its $541 million debt pile.

Warburton’s previously announced sale of Seven West’s magazine assets to Bauer Media has been, at best, delayed. And even if completed its $40 million proceeds will barely put a dent in Seven West’s debt.

Seven West Media chairman Kerry Stokes brought in 'Mr Fixit' James Warburton to get the company back on its feet.

Seven West Media chairman Kerry Stokes brought in ‘Mr Fixit’ James Warburton to get the company back on its feet.Credit:Peter Rae

His flagship deal was to merge with regional television affiliate Prime Media. It wasn’t a panacea for Seven West’s ills but it was an opportunity to benefit from $11 million in cost synergies and increase its assets while not growing its debt. It wasn’t to be. Team Seven was outmanoeuvred by cocky media entrepreneur Antony Catalano who had successfully coaxed another large Seven shareholder, billionaire Bruce Gordon, to block Seven’s takeover of Prime. Stokes was furious and the company’s gearing has remained stubbornly high.

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Seven West has now enlisted high-profile corporate advisory firm Grant Samuel to help with the debt. But it will be Stokes, whose Seven Group is the largest shareholder in Seven West Media, who will have the ultimate say on how to engineer a solution to the media company’s crisis. Over three decades Stokes has demonstrated mastery in restructuring his corporate empire – and always to his advantage.

The 79-year-old didn’t build his estimated $6 billion personal fortune by making poor investments, nor is media the source of his current wealth. But the Perth-based billionaire is shaping up as rescuer of last resort for the debt-ridden media group which, without a lifeline, potentially faces an existential threat.

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Media baron of old

Stokes is an old-fashioned mogul who enjoys the trappings and power of media ownership. In the heady days of 2000 he hosted hundreds of VIPs on a luxury ocean liner parked in Sydney Harbour during the Sydney Olympics. Two years later he sent his private jet with a Seven news team to Indonesia after the Bali bombing and was lauded for bringing back injured Australians.

In 2018 Stokes inserted himself into a federal political scrummage, warning in a phone call to his friend the then-prime minister Malcolm Turnbull that News Corp’s Rupert Murdoch was pushing to remove him from office. Such is the power bestowed by media ownership.

So what price is Stokes willing to pay to retain his powerful media baron status and his crown as king of Western Australia?

The challenge is to engineer a restructure that allows him to fix Seven West’s balance sheet and retain control of the media business with minimal personal cost to his wealth. Raising equity is difficult when the Seven West Media share price is so low. Merging with another media company is also difficult – given Seven’s debt pile would have to be consolidated in an expanded group. This would be further complicated by the fact that other media companies are battling their own revenue problems.

Kerry Stokes and AFL CEO Gillion McLachlan at the 2019 AFL Grand Final function at the MCG. The cancellation of live sports has bitten into Seven's advertising revenue.

Kerry Stokes and AFL CEO Gillion McLachlan at the 2019 AFL Grand Final function at the MCG. The cancellation of live sports has bitten into Seven’s advertising revenue.Credit:Wayne Taylor

That leaves doing some kind of deal with Seven West’s banks – either buying the debt at a discount or renegotiating the terms with lenders.

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There is always the potential for Seven Group to make a takeover offer for Seven in which it already has a 40 per cent stake. But minority shareholders in the $4.8 billion ASX-listed Seven Group are said to be bitterly opposed to tipping money into the troubled media company, while Stokes’ son Ryan, who runs Seven Group, is believed not to share his father’s romance with media ownership.

Stephen Bruce, director of portfolio management at Perennial Value, echoes the sentiment of a number of other Seven Group shareholders who spoke to The Sydney Morning Herald and The Age. “Bringing Seven West Media inside Seven Group doesn’t make Seven West any better a business, it doesn’t add anything to Seven Group – if anything the opposite,” he says.

“Seven Group has great business in Westrac and Coates Hire that are really well positioned on the big themes and then there is the media investment which is like a little appendage that doesn’t really warrant a lot of discussion.”

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Seven’s desperation to secure a summer sport after losing the broadcast rights for the Australian Open tennis to Nine in early 2018 led to a generous overpayment to secure cricket rights – an amount that required a $50 million write-down. As well Seven was slow to come to the online streaming party and didn’t launch its wholly-owned 7Plus service until 2018.

In a move that stunned the television industry, last month Seven brought back David Leckie as a consultant. The former Nine executive was hired by Stokes in 2002 to restore Seven Network’s fortunes. “Hiring David Leckie is like putting Dennis Lillee into the Australian cricket team,” quipped a former media executive. Lillee was one of the best fast bowlers in Australian history and last played for Australia in 1984.

Meanwhile, Stokes’ decision to stand by former chief executive Tim Worner in 2016 after a highly publicised and embarrassing affair with staffer Amber Harrison served to elevate criticism of the company as an old boys’ club – one out of touch with modern corporate governance.

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For shareholders, the bigger crimes are the missed opportunities and misdirected targets.

Lost opportunities

Seven West’s biggest expansion was in 2011 when it cemented control of West Australian News. It was a time when newspapers in the eastern states were already under pressure from the growing presence of digital advertising. Although it gave Stokes control of the WA media market and a print monopoly, it ultimately couldn’t outrun the march of digital which has decimated print revenues.

Another would-be opportunity was lost when Seven passed up the chance to take a position in video streaming start-up Stan in 2014. Nine’s chief executive at the time, David Gyngell, courted Seven for four months as a potential joint founding shareholder in the infant streaming service. Stokes baulked at the prospect of making an investment in this market only to enter it soon after in partnership with Murdoch. The streaming child of this partnership, Presto, lasted just three years.

But the game-changing opportunity arose in 2017 when it had the chance to merge with Fairfax. It was a deal that insiders say was sweated over for almost six months – but one that was ultimately abandoned, robbing the television network of the opportunity to diversify its revenue streams.

In the gossip-ridden media industry, the talks between Seven and Fairfax were an open secret. But the terms of the deal which would dilute Seven Group’s holding in Seven West Media to 16 per cent and leave Fairfax in control of management and the board was a bridge too far for Stokes.

It could have left Seven in a stronger financial position but would have robbed Stokes of his media baron title. Nine had no such reservations. It opportunistically took Seven’s place and after a rapid three-week courtship the merger was announced. In the aftermath not only did Seven still have a debt problem it had a financially stronger competitor in Nine Entertainment, owner of this masthead.

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So Seven retained the debt noose that had made it a corporate wallflower during a period of media consolidation. Small asset sales such as its regional radio network to Southern Cross for $28 million have barely moved the dial.

His decision would balance between “5 per cent of his net worth against 95 per cent of his pride”.

Stokes insider

After Fairfax and Nine merged, conventional industry wisdom was that Seven would team with Rupert Murdoch’s News Corporation. But as one media boss opined, “Lachlan [Murdoch] now has a bigger problem to deal with in Foxtel and that would be taking most of his attention”.

News Corp Australasia’s executive chairman Michael Miller agrees. He told The Sydney Morning and The Age in April that his business was focused on helping newspaper titles and subscription service Foxtel through the crisis, instead of bailing out Seven.

It’s now down to Stokes.

His decision would balance between “5 per cent of his net worth against 95 per cent of his pride,” says one insider that has known Stokes for 30 years.

With Zoe Samios

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