Kerry Stokes and son and heir Ryan, have sent another strong message that the legacy media sector, where they first made their name and then lost a fortune – is no longer of any relevance by emerging with a near 10% stake in struggling building products giant, Boral.
Stokes’ Seven Group is already in building and construction through Westrac (Caterpillar machines which are big in the WA iron roe industry and in NSW infrastructure projects) and Coates Hire which hires building equipment across all parts of building and construction and Allightsykes which hires lighting, dewatering, power generators and engines across Australia and NZ.
In a filing to the ASX Seven Group Holdings, the Stokes’ master company, confirmed on Tuesday that it held (at June 2) a 10% stake in Boral. The news pushed Boral’s valuation to more than $4 billion. Boral shares rose more than 6% on Tuesday and another 1.7% yesterday to end at $3.59. Seven Group shares rose 2.7% to $17.21.
Stokes can’t afford to make a full bid for Boral – the cost is too much and he would have to issue shares to raise enough cash. That would dilute his current controlling stake of just over 60% of Seven Group Holdings. It’s valued at $5.7 billion but the dilution of Stokes’ stake would be too much for him.
Raising debt in the current climate will be tough anyway, even though the WA iron ore business is solid. Housing and construction isn’t and will get worse before ay stimulus spending has had time to boost activity. That makes banks wary.
Boral shares have risen 32% in the past month as Stokes’ companies have stalked the faltering giant which is about to see long time CEO, Mike Kane depart after 8 years of mostly moderate performance.
The other major business for Seven Group is energy – both through its wholly-owned subsidiary and through a near $30 stake in Beach Energy which up to the Boral raid, had absorbed over $1 billion of investment and loans from the Stokes’ empire.
The investment so far in Boral shares is north of $350 million which is almost three times the market value of the 41% of Seven West Media Seven Group holds. Back in 2011, it was worth $4.1 billion, so the destruction of value in the media business by the Stokes camp has been pretty amazing.
The message here that while Seven West Media shares have jumped more than 50% in the past month to 13.5 cents on Wednesday, its biggest shareholder won’t give it any more support and prefers to play stockmarket games investing in a highly cyclical building industry giant with a weak track record.
Follow the money is always the safest rule to follow in the media and money businesses and it is a sure path to watch in the Stokes empire. Seven West Media has now been cast well and truly adrift and its major shareholder says ‘sink or swim’. hedge funds and other punters are racing into the stock now in the belief that Stokes will be a seller of his stake in Seven West Media. But who’s the buyer if that happens?
Seven West’s magazines have gone, the Perth newspapers are struggling and Seven Network’s ratings have fallen sharply on a growing series of ratings flops. Ad revenues are down by 30% to 40% because of COVID-19. Buying control of Seven (a bid would have to made to all shareholders) might cost $300 million or so, but in the current weak climate for legacy media even that low price is a big risk.