West Australian Newspapers

"‘Shock and awe’ is how one commentator described the announcement made by the Seven Network in February 2010.16 In theory the board of the company had, ever since the Kohlberg Kravis Roberts deal, been searching the world for good investments. Instead, much of the money had been used to buy back shares in the company itself, which had increased Stokes’ control. More had been spent on Consolidated Media Holdings and West Australian Newspapers. Now, the company announced, it had decided that the best way to spend its cash was to buy WesTrac from Stokes’ private company, ACE. Under the deal the Seven Network would pay $1 billion in shares for WesTrac, and take on the company’s $1 billion in debt, using $600 million of the remaining cash in the company to pay it down. The new merged company, Seven Group Holdings, would own the Seven Media Group with Kohlberg Kravis Roberts. It would be a conglomerate, bearing the Seven name but with little to do with the original business. Stokes would own 68 per cent of it. Once again, the equity moved closer to Stokes, and the debt – accrued by WesTrac during its fast expansion in New South Wales and China – further away. One investment adviser service described the situation pithily. ‘So after three years of searching high and low, the directors [of the Seven Network] have come to the conclusion that the very best investment opportunity is the acquisition of WesTrac.’ Under the heading ‘Sarcastic Remark Warning’, the service’s newsletter said, ‘The new combined media investment and heavy earthmoving company will be renamed Seven Group Holdings Limited, presumably a reference to the seven seas sailed by independent directors in their search for investment opportunities before stumbling onto the perfect one in their boss’s backyard.’"

"In 2011 it was announced that West Australian Newspapers, once a cashed-up, debt-averse and conservatively managed local newspaper company, would bid to take over the whole of the Seven Media Group, in a $4.1 billion merger, creating a new entity called Seven West Media. Stokes controlled both companies, and the deal was yet another immensely complicated related-party transaction. Market analysts agreed that this deal made more sense than the previous merger of earthmoving equipment and media assets. It would bring newspaper and television assets together. The immediate spur was almost certainly that Stokes’ private equity partner, Kohlberg Kravis Roberts, wanted to sell off its investment, having done no better than break even. The deal allowed Stokes to consolidate all his media investments in one vehicle, while allowing Kohlberg Kravis Roberts to leave its Seven Media Group investment without Stokes having to use his own money to buy them out; the money was coming from the West Australian Newspapers balance sheet. The deal meant that $2 billion of debt went into the listed West Australian Newspapers, now reborn as Seven West Media. Kohlberg Kravis Roberts would receive $920 million for its stake, and would be left owning just 13 per cent of Seven West Media, a stake it sold in 2013. The deal gave the Stokes-controlled Seven Group Holdings Ltd increased control of West Australian Newspapers – from 24 per cent up to 33.6 per cent. Once again, debt shifted down the corporate structure, further from Stokes’ private interests, while he increased his equity and control. Financial journalist Alan Kohler described it as ‘deal-making 101 of the Kerry Stokes business school – gaining control of a company without the inconvenience of paying a direct takeover premium’. It was, said Kohler, ‘just about the high-water mark of complicated related-party transactions in Australian corporate history’.24"

"If Seven and WesTrac was an arranged marriage, Stokes’s next proposal — that West Australian Newspapers should swallow the entire Seven Media Group — seemed more like a contortionist’s act. West Australian Newspapers was valued at $1.4 billion and Seven Media Group at $4.1 billion. Shareholders were nervous and some downright hostile to a related party transaction, but Stokes managed to persuade enough of them that Jonah could swallow the whale and would benefit hugely from the experience. Apart from a little indigestion, what could possibly go wrong? When Stokes had done the original deal with KKR in 2006 he had been able to take out $3.2 billion in cash, keep half the business and leave the joint venture holding all the debt. Now he was able to merge it back into the rest of his media interests and raise $1 billion in new equity to pay down the debt — and still maintain control. Seven West Media was born. It was one of the great coups of Australian business history."