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Seven embarks on joint venture -

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Seven embarks on joint venture

Broadcast: 20/11/2006

Reporter: Helen Brown

The Seven Network is poised to buy more media assets after forming a new $4 billion joint venture
with a private equity firm.

Transcript

MAXINE McKEW: The Seven network will be part-owned by an American private equity group in the
latest deal among the nation's media giants. It's an arrangement that will create a new company and
give Kerry Stokes billions of dollars to play with. Speculation is already mounting about his
interest in the Fairfax media. However, not everyone is convinced that other media companies are
necessarily the targets of the new Seven venture. Helen Brown reports.

HELEN BROWN: Kerry Stokes is the latest media mogul to make changes to the landscape. His Channel
Seven network is creating a $4 billion group with the American private equity firm Kohlberg Kravis
Roberts to be called the Seven Media Group. That will see them both share ownership of Seven's
television, magazine and online assets.

KERRY STOKES: This is the most excited I've ever been about our network.

ALAN KOHLER: It's the best game in town. They're able to get all this cash while retaining half of
the business.

HELEN BROWN: The deal is similar to the one made last month between the Packer family's PBL company
and a different private equity group where ownership is shared and funds are freed up for
potentially other users. Today's agreement gives Kerry Stokes $3.2 billion to invest. And in a
statement to the Stock Exchange, Mr Stokes said, "The agreement delivers to Seven, its people and
shareholders a venture with strategic and financial flexibility to take advantage of the dynamics
of the Australian and New Zealand media."

Mr Stokes recently added to his shareholding in West Australian newspapers and is now being
questioned about his interest in newspaper publishers Fairfax.

KERRY STOKES: We've made no decision on buying anything.

JOURNALIST: Would you like to?

KERRY STOKES: I haven't considered Fairfax.

ALAN KOHLER: The trouble is this new vehicle which is half-owned by KKR and half-owned by Seven
that owns these things has so much debt. It's already got $2.5 billion debt. They'd have to raise
more money from somewhere, presumably from Stokes and Seven and from KKR. They won't be able to
borrow much more. So I think they might talk as much as they like, but I would say the big
takeovers are off the agenda unless they can raise more cash.

HELEN BROWN: Private equity firms essentially buy an entire company instead of just investing in
shares and then cut costs and resell it, sometimes to the very

people it was bought from. Mr Stokes says there'll be no changes to Seven's

staff.

KERRY STOKES: We've made our cuts. They're excited we don't have to make cuts.

ALAN KOHLER: Private equity in general are harsher and tougher on costs and so on. But David Leckie
and Kerry Stokes have already been pretty tough on costs at Seven. So I don't think there's going
to be any change there. Anyway, they still own 50 per cent of it and David Leckie remains managing
director. So really in terms of the management and the way it's run, it will make no difference at
all.

HELEN BROWN: The trend of private firms buying media interests isn't confined to Australia. Last
week KKR was among losing bidders for US radio giant Clear Channel, a deal described as the fourth
largest of its type ever. Helen Brown, Lateline.