Just prefer to put the article uphere before it goes...

Just prefer to put the article uphere before it goes "subscriber only". Great reading...

fc3766, Your point about outdoor advertising(at end of article) is very worthwhile - perhaps OML would be even better in acombined "SWM and OML" outfit. Seriously!

Behind the two-year battle of the billionaires forPrime Media

November7, 2021

JW did notwant to fail twice. So, when the Seven West Media chief executive called hischairman KS on October 29 to discuss the final conditions of a bid for regionalbroadcaster Prime Media, he was relieved to get the approval.

Stokes’blessing for a sweetened offer was the final hurdle to clear for Warburton, whohad aspired to create a truly national television network since he returned to the offices of Seven in August 2019. The deal, worth $132 million, was agreed by both parties last Saturday and announced to the ASX last Monday.

Sevenchairman KS and CEO JW. Warburton wanted to do the Prime deal from the momenthe walked into the offices in 2019.

Theacquisition of Prime Media, which broadcasts Seven’s programs such as TheVoice and SAS Australia in non-metropolitan areas, was always meantto be a straightforward transaction that would boost Seven’s earnings and giveWarburton a bigger empire.

Instead,it became a two-year stalemate, and a clash of some of the biggest egos inAustralian media including three billionaires - Stokes, WIN Corp owner BG,Melbourne financier AW as well as Antony Catalano, real estate entrepreneur andwould be regional media mogul.

Backon the table

Warburton’s2019 offer for Prime - at 0.46 Seven shares for each share in the regional TVoperator, valuing Prime at $64 million - was approved by Prime’s board, butdoomed from the start.

Gordon wasinsulted by the bid because the price worked out to be less than what he hadpaid buying some 39 million shares in Prime from Stokes’ Seven Group Holdingsin 2017 (he paid 40 cents per share).

Meanwhile,Catalano and his business partner Waislitz had ambitions to acquire Prime forthemselves. Catalano and Waislitz had teamed up in 2018 to purchase a portfolioof regional newspapers including The Newcastle Herald and TheCanberra Times that were offloaded by Nine Entertainment Co (owner of thispublication) following its merger with Fairfax Media.

Combiningregional newspapers with a network of regional television stations could createa formidable media company, they figured. Catalano and Waislitz built a 14.6 percent stake in Prime to provide them with options. Thwarting Warburton’sambitions was just an added bonus.

ByDecember 2019, as Warburton celebrated his 50th birthday, it was clear hisaspiration to bring together Seven with Prime had slipped away. Seven built a14.9 percent stake in the company, the maximum amount allowed without making afull takeover offer under federal laws, and went back to the drawing board.

For 745days, Prime and its chief executive Ian Audsley sat in the middle of astand-off between some of Australia’s richest media owners. Gordon and Catalanoon one side - with neither allowed to buy Prime under the current media laws -and Stokes, who was blocked by the other two.

Prime’spredicament

By October2021, as Seven was preparing its second official tilt at its target (its third overall), Prime was in a different financial position. The regional broadcaster’s third chairman since the first bid from Seven, Ian McGill, a one-time lawyer of Kerry Packer, had just declared it would start paying dividends for the first time since 2017.

Prime’searnings were strong because of a rebound in the advertising market after thefirst lockdown period caused by the coronavirus pandemic, and it had no debt.Its shareholder register had also changed. Catalano was now the biggestshareholder with 22.9 percent of the company, while Gordon owned an 11.9 percent stake.

Multiplepeople involved in the negotiations, who spoke on the condition of anonymitybecause the talks were confidential, said the only way Warburton could secure adeal was to offer Catalano and other shareholders cash.

Securingsupport from Prime’s biggest shareholder, Antony Catalano, was key

Seven’soriginal bid in 2019 was an all scrip offer. It was structured this way becauseSeven was in a terrible financial position, with $541 million in debt and astruggling programming slate. But like Prime, a lot has changed since then.Seven’s debt has been reduced to $240 million and in October, Seven was back intalks with its lenders for a second time in 18 months with the aim of securingeven more attractive loan terms. Seven’s programming lineup was also in a muchbetter position, and ratings had been buoyed by the Tokyo 2020 Olympics.

A tie-upbetween Seven and Prime, in the view of its shareholders including Catalanomade complete sense. Any potential bidder that went up against Seven riskedlosing programming when the affiliate contract came up in July 2023.

AndCatalano, though still determined to create a regional media company, had puthimself in a precarious position. He knew that every time he increased hisshareholding, he ran the risk of losing a partnership with Seven, which wasstill infuriated by his success in blocking the 2019 deal.

Butsources on both sides of the talks said that a two-year deal struck betweenNetwork Ten and Prime’s regional rival Southern Cross Media Group crystallisedthe fact that something needed to be done. The affiliate agreement between Tenand Southern Cross would expire at the same time as Prime and Seven’s currentdeal.

This meantSeven could potentially tie up with Southern Cross, which would hurt Prime’searnings. But equally, it meant that Prime could sign an agreement with NetworkTen, which could affect some of Seven’s contracts such as the AFL broadcastrights, which require a national footprint (Southern Cross has no TV licence inNorthern NSW). Either way, the expiry of two affiliate agreements at the sametime would create competitive tension, and could be expensive for the regionalcompanies.

Theclincher

Talksbetween Seven and Prime became serious in early October. While McGill and Audsleymet with Warburton back in June, the talks formally recommenced about six weeksago after Warburton sent a letter to Prime with a non-binding indicative offer,according to two people familiar with the matter.

But itwasn’t exactly smooth sailing. As the deal progressed, McGill’s relationshipwith some shareholders soured. Just two days before a deal was struck, heabruptly resigned.

Multiplesources familiar with the situation said the resignation was the result of anargument between McGill and Catalano, where the latter accused the former oflying about Prime’s earnings and a discussion he was alleged to have had withSeven about its value. In a meeting on October 27, Catalano threatened to spillthe board if McGill did not resign, claiming he was the reason a deal had notyet been agreed. Board director Cass O’Connor, who also in the meeting, wasinstalled as chair.

McGilldeclined to comment on his resignation. “I’m very pleased the deal has beenannounced,” he said when contacted by this masthead.

Thedispute between McGill and Catalano was one of many that took place betweenmanagement and stakeholders during the talks, according to the sources. Butfrom there, things moved quickly. Three days later, Warburton had finallysecured his prize.

One of thepoints of tension in the new Prime deal was its structure. Seven believed thatif it made a cash offer at a premium it could secure the deal. But theshareholders wanted more - franking credits that meant the cash would cometax-free.

That finalcall to Stokes, according to people familiar with the shareholders’ demands,was to discuss the prospect of increasing the deal by about $5 million.

Seven hadjust renegotiated its debt facilities and was in a financial position topounce. Stokes agreed. Thanks to Seven chief financial officer Jeff Howard,Prime’s shareholders and Seven had a structure that everyone could support.

When Primeannounced the bid last Monday, it came with the public support of shareholdersthat dominate its register: Gordon, Catalano and Waislitz, fund managersSpheria Asset Management, Keybridge Capital and Regal Funds Management all gavethe deal their blessing.

Therevised deal is at a 57 percent premium on the closing share price of Prime onOctober 29. Shareholders will receive 36 cents per share including a specialfully franked dividend of 26 cents. This means Seven will receive $20 millionof its money back because it owns 14.9 percent of Prime.

Morningstaranalyst Brian Han said last week that 745 days on, the strategic and financialmerits of a Seven-Prime tie-up remain intact.

“Swallowingits regional TV partner is a logical deal for Seven, especially in an age whereover-the-top technology has made the metropolitan-regional TV affiliationconstruct laughably quaint,” Mr Han said. “The strategic benefits of offering asimple, integrated nationwide TV solution across linear and [broadcast video ondemand] channels are unequivocal for advertisers.”

Whatthe deal means for the industry

The saleof Prime to Seven partly resolves an existentialcrisis that the regional media sector has faced for a long time.

BeforeSeven’s first attempt to buy Prime under Warburton’s leadership (Seven’s formerCEO Tim Worner also tried back in 2017), the regional broadcaster had discussedcombining forces with its rivals WIN Corp and Southern Cross and were urginggovernment to ease media laws that prevented the three companies from comingtogether. The challenging advertising market and rise of online subscriptionand advertising-supported streaming services - including 7Plus, 9Now and 10Play- were making it difficult to make money and keep regional journalism alive.

As thepandemic took hold in the first quarter of last year, Australia’s threeregional TV bosses warned Communications Minister Paul Fletcher that local newsand current affairs services would disappear unless they were allowed to merge.That concern, for Prime at least, has gone.

Sevencould do a deal with Prime because of changes to media laws in 2017 by theTurnbull government. Seven and Prime were previously not allowed to combine dueto the “reach rule”, which prevented a TV network from broadcasting to morethan 75 percent of the population.

Subject toan independent expert and shareholder approval, Prime looks set to become partof Seven. But that deal could also prompt the next round of consolidation foran industry which was under tremendous pressure during the pandemic.

WIN Corpand Nine are at the beginning of a seven-yearaffiliate deal. This leaves Southern Cross - which was hoping to secure a deal with Seven in two years - in a short-term agreement with Ten.

Industryobservers believe it would make sense for Southern Cross and Ten to merge insome capacity. But they do not believe Ten’s owner, ViacomCBS, would buyanother free-to-air network in Australia. Equally, they do not believe SouthernCross boss Grant Blackley - who is more focused on his radio business - wouldwant to invest in television.

But thatdoesn’t mean there won’t be changes. As Prime and Seven finalised their deal,radio and billboard company Here, There & Everywhere, ended a lengthydispute with the Australian Tax Office and sold their 4.2 per cent stake inoOh!Media for $49 million.

With nodebt and cash in the bank, it appears well-placed to strike a deal of its own.Industry executives privately say Seven could make for a perfect partner. Itwould help Seven reduce its reliance on television and become a more diversebusiness. There are many that also believe Australia’s big media companies willset their sights on businesses that specialise in outdoor advertising, a sectorwhich bounced back quickly last year once lockdowns ended and people started tocommute.

Warburtoncan rest easy for now, at least. The tussle between some of the media’s biggestpersonalities has been all but won.