Stokes Plans A$2 Billion Merger to Vie With Packer,

Rinehart:

Billionaire Kerry Stokes will combine West Australian Newspapers Holdings

Ltd. with Seven Media Group in a $2 billion takeover, creating the nation’s
biggest media company with the top-rated TV network and more than 25
magazines.

West Australian will acquire Seven Media for A$1.98 billion ($2 billion) from
Seven Group Holdings Ltd. and buyout firm KKR & Co., the companies said
today. Including assumed debt, the A$4.09 billion offer would make it the
biggest ever purchase of Australian media assets, according to data
compiled by Bloomberg.

The publisher of Perth’s sole daily newspaper will add TV stations across
Australia’s five largest cities and the country’s second-most visited Internet
portal in its purchase of Seven Media. The move follows more than A$400
million of investments announced by rival tycoons James Packer, Lachlan
Murdoch and Gina Rinehart since October as advertising sales are projected
to grow to a record A$13.9 billion this year.

“This deal is happening in the backdrop of the improving economic

environment for the media in Australia where people are willing to employ
and willing to spend,” said Nader Naeimi, a Sydney-based strategist at AMP
Capital Investors Ltd., which manages about $93 billion. “These guys will do
whatever they can to get into the online business, which is a major, major
threat to their traditional business models.”

Biggest Media Company

The purchase will help West Australian post net income of A$304.7 million,
triple the profit it had estimated excluding Seven Media, for fiscal 2011, it
said. Earnings-per-share growth will be limited to 6.8 percent because of the
new stock to be issued, it said.
Seven Media’s magazines include Men’s Health, In Style and Management
Today. Channel Seven’s ‘Packed to the Rafters’ is the country’s most-
watched drama, according to its website.
West Australian’s market value will likely increase to A$3.5 billion, making it
the biggest Australian-domiciled media company, according to the
newspaper publisher.
The enterprise-value offer for Seven Media is 11 times estimated earnings
before interest, taxes, depreciation and amortization in the year ended June,
according to an investor presentation. That’s in line with the average
multiple offered in Australian media acquisitions, according to data compiled
by Bloomberg.
“The implicit price of the seven assets appears reasonable,” said Angus
Gluskie, who manages about $350 million at White Funds Management Pty in
Sydney, including Seven shares. “This action also simplifies the exit for KKR
who then avoid the prospect of seeking to sell a part share in an asset.”

Expanding Market

Stokes, 70, is Australia’s tenth-richest person, with a fortune of $1.9 billion,

according to Forbes magazine. After being adopted at three years of age,
struggling with dyslexia and sleeping on the streets at 15, he began building
his wealth with property investments, he told STM magazine in a 2008
interview.

Rinehart, Australia’s richest person with a $9 billion fortune estimated by

Forbes has acquired 10 percent of third- ranked broadcaster Ten Network
Holdings Ltd. and a stake in Fairfax Media ltd.

Packer is worth $4.4 billion according to Forbes and last year teamed with
Lachlan Murdoch, son of News Corp. Chairman Rupert Murdoch, to buy 18
percent of Ten Network.
West Australian shares were halted from trading after closing at A$6.34 on
Feb. 18. Seven Group shares rose 2.3 percent to close A$9.30 in Sydney.
The nation’s advertising market will probably expand 6.5 percent this year,
led by a 17 percent growth in Internet spending and 7 percent increase in TV
expenditures, according to estimates last month at Morgan Stanley. Overall
spending rose 10 percent in 2010 after shrinking the previous year,
according to the broker.
Capital Rising

West Australian will issue A$1.08 billion of stock, A$250 million of convertible
preferred stock and repay A$650 million of Seven Group Holdings Ltd’s debt.
O’Sullivan Partners is the financial adviser to West Australian News while
JPMorgan Chase & Co. and UBS AG will jointly underwrite and manage the
entitlement offer.
Seven Group, which last year acquired Stokes’ private company Westrac
Holdings for about A$1 billion, will own as much as 34 percent of West
Australian News and KKR will have about a 13 percent stake, according to
the statement.

“We expect existing West Australian Newspapers shareholders will be

frustrated -- but should not be surprised - - by the requirement to finance
another ‘Stokes’ related party transaction,” Justin Diddams, an analyst at
Citigroup Inc. said in a note to clients today.
M&A Revival

Stokes’s Seven Media was formed when Seven Group’s predecessor Seven
Network Ltd. sold its television and magazine assets into the venture with
KKR in 2006, when changes to the nation’s media ownership laws led to
deals valued at more than A$10 billion, including Packer’s sale of his
television and magazine assets to a venture with CVC Asia Pacific Ltd. and
Fairfax Media’s A$2.7 billion purchase of Rural Press Ltd.

Seven Media’s magazine titles include New Idea and the Australian edition of
Marie Claire and half of Australia’s second-most visited web portal through a
venture with Yahoo Inc. West Australian also owns 21 regional publications in
Western Australia and nine radio stations.
Seven Groups owns Westrac, the sole Caterpillar Inc. dealer in Western
Australia, New South Wales, Australian Capital Territory and north east
region of China. It owns 24 percent of Consolidated Media Holdings Ltd.,
which has a 25 percent holding in Australia’s biggest pay television operator
Foxtel.