02 Oct The $180m reason why Kerry Stokes is selling Seven West
Source: The Financial Review
Southern Cross Media’s takeover of Kerry Stokes’ Seven West Media will net the media mogul hundreds of millions of dollars in losses that can be used as tax credits worth far more than his stake in the business itself.
When Stokes first took a stake in the newly created Seven West in 2011 the value of his investment was more than $730 million. He owned 29.6 per cent of the new entity, which combined the Seven Media television network with West Australian Newspapers Holdings and was once Australia’s biggest media company.
Fourteen years later, the Stokes-controlled Seven Group Holdings’ larger, 40.2 per cent stake in Seven West was valued at just $89.7 million on its books, according to its most recent annual report.
Media is a tiny part of $20 billion Seven Group, known as SGH, which owns Caterpillar dealer WesTrac, equipment hire company Coates and construction materials firm Boral. SGH posted $10.7 billion in revenue in the last financial year and profit of $486 million – after paying $284 million in income tax.
Southern Cross, which owns the Triple M and Hit radio networks and Listnr app, announced on Tuesday it would issue shares to acquire Seven West in a takeover that valued the target at 13¢ a share, which was below its previous closing price.
The merger, which is a scheme of arrangement and subject to a vote by Seven West shareholders, would create a $420 million company combining Network Seven, The West Australian and Southern Cross’ radio networks.
Sources close to SGH, not permitted to speak publicly, confirmed the company would record losses of roughly $600 million should the takeover go through. The losses mean SGH could, based on the corporate tax rate of 30 per cent, reduce its tax liability by around $180 million. SGH declined to comment.
Meanwhile, SGH’s 20 per cent stake in the new, combined group would be worth around $90 million – similar to the value of its stake in Seven West.
The structure of the deal has drawn controversy. It allows Southern Cross to issue almost 100 per cent of its shares to acquire Seven West without consulting its shareholders. Prominent investors and proxy advisers have criticised the ASX, whose rules allow these forms of takeovers. The corporate regulator is actively engaging with the exchange on a review, according to sources with knowledge of the matter.
Ownership Matters co-founder Dean Paatsch said the deal revealed the “absurdity” of listing rules, while the Australian Council of Superannuation Investors chief executive Louise Davidson described it as a “clear loophole” to the rules.
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