30 Sep Blue murder! Stokes’ canny Seven West merger and deadline dash

Source: The Financial Review

By: Anthony Macdonald

The pieces of Australia’s media puzzle are moving around, and one man is at the centre of it.

The businessman’s probable final move in Australian public markets is typically shrewd, strategically astute, carefully (or even cynically) structured and well-timed. It has other helpless onlookers screaming blue murder.

Selling his Seven West Media into radio company Southern Cross ties a neat ribbon around one of his family’s investment problems; how to grow a national television and regional print media business.

Repeatedly, Seven West management teams have tried to cut their way to growth, but earnings per share have halved and halved again, the company has too much debt and hasn’t paid a dividend since Donald Trump was president the first time around.

Stokes’ SGH, the conglomerate tightly run by his son Ryan, owns 40 per cent of it. That stake is the laggard in SGH’s portfolio, too big to shift, too small to really make a difference.

Yet even at 85, Stokes senior loves his media investment and its purpose and power, particularly in Perth.

So, what to do? Find a dance partner – and Seven West picked a doozy. 

The partner is sleepy Southern Cross, an AM/FM radio and podcast company that’s been the toast of the traditional media town since selling the last of its regional television assets to Seven West in July.

Unlike Barrenjoey advised Seven West, Southern Cross had fixed its balance sheet, grown earnings in FY25 and cleaned up its portfolio. Its share price has doubled in the past year.

Southern Cross was supposed to be on Nine Entertainment’s shopping list. Nine, publisher of The Australian Financial Review, has about $600 million cash to burn after selling its Domain stake and returning only 60 per cent of the proceeds to shareholders.

UBS-advised Southern Cross (enterprise value: $393 million) was a logical target – a chunky FM radio and podcast business into the country’s biggest media group.

But instead of waiting for Nine to show up, Southern Cross is on the front foot buying back those regional television stations, along with everything else in the Seven West stable, in an all-scrip deal. Southern Cross and Seven West have been in confidential talks since June 19 and now have a deal that will see Southern Cross own 50.1 per cent of the combined group.

Why? Southern Cross chief executive John Kelly says a bigger audio/TV/print company with a broader basket of digital assets (7plus streaming and Listnr podcasts) and a targeted focus on the 25-54 year old audience, is “incredibly complementary”. The same argument stacks up on the Seven West side.

Kelly won’t say it but the other issue he has is a basket case of a register, which makes him beholden to a handful of big shareholders.

Sandon Capital, Spheria Asset Management and Antony Catalano/Alex Waislitz’s 19 Cashews own about 40 per cent of the company’s shares between them. Sandon has already been trying to roll the board.

Jamming Stokes and Seven West’s shareholder group into the enlarged Southern Cross effectively dilutes those shareholders’ power, putting them below Stokes’ SGH in the pecking order.

The deal was deliberately structured to avoid a Southern Cross shareholder vote, and Sandon Capital’s already hit the roof.

There’s a growing pushback from Australian institutional investors against exactly these sorts of scrip transactions. Shareholders like Sandon and Allan Gray are still waiting on the ASX to review listing rules and make shareholder votes on such scrip-based acquisitions compulsory. It’s a red-hot story, the story of the day if it wasn’t for Stokes.

Final day for ACCC merger process

Southern Cross/Seven West’s deal was also announced on the very final day any new deal can go into the ACCC’s outgoing informal merger clearance process – and remember ACCC approval is one of the things required to complete the deal.

From Wednesday, lawyers say all deals must go through the ACCC’s likely harsher, more prescriptive and more transparent new regime. And why would Southern Cross/Seven West want to do that? The lack of meaty financial information from either Southern Cross or Seven West on Tuesday makes it look like the deal either came together late or was rushed out ahead of a deadline.

So, it is cunning deal-making from a man – and now family – renowned for it. We saw it when the Stokeses went after Boral (twice), when they sold and bought back stakes in Seven Network and Coates Hire to private equity giants KKR and The Carlyle Group, when they sold Seven Media Group to West Australian Newspapers to create what is now Seven West Media in 2011.

One more deal to exit public business life

Stokes intends to use the deal to exit public business life, planning to step down from Seven West as his final public markets directorship in February. Son Ryan will represent the family (and its SGH) on the board, while Kerry will remain an adviser to Southern Cross/Seven West (as he is at SGH). Southern Cross’ Heith Mackay-Cruise is slated to chair the new group’s board from February 2026.

It’s the sort of deal that could also get the jigsaw pieces moving. Like we said, Nine’s the potential consolidator with $600 million cash from Domain and a new chairman in Peter Tonagh as of November 7, someone who knows Australia’s traditional media sector as well as anyone. Nine could try to bust up that Southern Cross/Seven West deal, but would have to be willing to take on the Stokeses, which is never easy.

The other interested onlooker is Southern Cross’ one-time merger buddy ARN Media, Australia’s other big FM radio and podcast company, now standing at the altar and flapping about in the breeze. Logic said it would go to its 14.9 per cent shareholder, Seven West.

However, Seven West is clearly looking the other way.