Merits questioned


Published in the Burnie Advocate, April 2010

Seven Network Ltd's proposed $3 billion merger with Kerry Stokes' privately owned WesTrac earthmoving equipment group appears sewn up, but analysts remain divided on the merits of the deal.

Seven's key minority shareholders, including boutique fund manager Ausbil Dexia and investment manager Perennial Value backed the deal last week. Their support was conditional on Mr Stokes foregoing $130 million worth of shares in the merged entity if WesTrac, a Perth-based Caterpillar products dealer, does not meet its 2010-11 earnings before interest, tax, depreciation and amortization target of $231 million.

The fate of the planned tie-up rests in the hands of the minority shareholders because Seven chairman Mr Stokes, who holds 48.7% of Seven shares, cannot vote on the related party transaction.

Ausbil and Perennial hold about 28% of the shares in Seven that are not held by Mr Stokes' private investment vehicle, Australian Capital Equity.

While the deal is likely to get the nod from the broadcaster's shareholders at a meeting in
Sydney today, independent media sector analyst Peter Cox said the melding of a mining and construction equipment company with a media group was not compelling.

"Conglomerates haven't been highly successful in recent corporate history," Mr Cox said yesterday.

"We lose a pure media play and we don't want that because there aren't many of them."

However, Wealth Within Ltd investment analyst Janine Cox said the rewards of diversification would outweigh the risks for Seven.

"Without the deal, I believe it will be a long time before Seven is able to create significant additional value in a reasonable time frame for shareholders to justify a price above $8," Ms Cox said.


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