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Seven inks pact with U.S. equity firm

Deal values Seven's media assets at $3.1 billion

SYDNEY — Seven Network has announced the formation of Seven Media Group, a joint venture with US private equity firm Kohlberg Kravis Roberts & Co. (KKR) that values Seven’s media assets at $A4 billion ($3.1 billion).

Deal sees KKR acquire half of Seven’s media assets — including Seven’s television and magazine assets as well as the group’s online joint venture Yahoo!7 – for which Seven will receive $2.4 billion in cash. KKR will also pay $565 million for a 50% stake in the new entity. The investment will initially be in the form of converti-ble notes, which may not be converted until after new Oz laws take effect allowing foreign ownership of local media assets; laws are expected to change in the new year.

Deal bears a striking similarity to James Packer’s sale of Publishing & Broadcasting Ltd’s media assets — which KKR had also bid for — to Blighty private equity firm CVC last month and it means there are now two cash-rich media congloms ready to prowl when Oz’s media laws finally change.

The new entity, like its rival PBL Media, says it will use its new-found funds to look at going on a media shopping spree.

“Our primary love is broadcasting and, with that, online and our magazine business,” said Seven topper Kerry Stokes. “Where we can see expanding that — where it makes sense — that’s what we are looking at whether it is in Australia or New Zealand.”

Stokes added the group may also look at assets further afield.

Given the challenges ahead for free-to-air television with eroding auds and new media competition the prices paid for both deals has been questioned but KKR’s Justin Reizes believes it has paid a fair price.

“This, in our mind, is Australia’s best performing media business and we have a fantastic cultural fit with the people at Seven,” Reizes said. “There is a real vision on where to take this business and that is what we paid the price for — the future.”

He also defended the sudden over-seas interest in Australian media, which many analysts see as a sector that is not as attractive as when the media laws were put in place 20 years ago.

“The attraction of the Australian media market is that it has been a very interesting market when you look back at it,” he said. “Particularly the free-to-air market which has shown significant growth and we think there will be continued growth.”

Both parties agreed that the future of online broadcasting and Seven’s joint venture with Yahoo! was one of the strongest draws of the deal.

Defending the notion that equity firms usually buy, strip and sell assets they acquire Reizes said this was not a short term investment for KKR.

“This deal is not thinking about getting out,” he said. “We are investing with a partner, we want to do more with this partner and we want to build a bigger media business in Australia.”

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