Seven West plans shake-up through $65m merger with Prime Media

Seven West plans shake-up through $65m merger with Prime Media

Seven West Media (ASX: SWM) intends to create Australia's leading wholly-owned commercial premium broadcast, video and news network through a scrip-based deal with Prime Media Group (ASX: PRT).

The move is another shake-up in the country's media landscape within a year of the completion of Nine Entertainment Company's (ASX: NEC) $4 billion takeover of Fairfax - a deal made possible by former Prime Minister Malcolm Turnbull's changes to media ownership laws. 

The merger would give Prime shareholders around $65 million worth of SWM shares based on the price at the time of writing, receiving 0.4582 SWM units for every PRT share they own; this is more or less in line with Prime's market capitalisation. 

If the proposed transaction is completed, SWM shareholders will own 90 per cent of the combined entity with Prime shareholders owning the remaining 10 per cent.

"SWM and Prime have had a longstanding relationship and are key partners in the industry. The combined group will cement our position as Australia's leading content provider and presents excellent value to shareholders," says SWM chairman Kerry Stokes AC.

The merged media behemoth would have the potential to reach 90 per cent of Australia's population each month, with estimated cost synergies of $11 million annually excluding transaction and integration costs. 

"The Proposed Transaction is a game changer for advertisers and media buyers and cements SWM's position as the superior advertising offering," says SWM chief executive officer James Warburton.

"Overnight, SWM will be the leading wholly-owned commercial premium network that amasses a monthly Australian audience reach of 18 million people."

Prime's chairman John Hartigan says his board has carefully considered the proposal and believes it is in the best interests of Prime shareholders.

"It represents an exciting opportunity for Prime shareholders to maintain their exposure to the broadcast television industry in a stronger and larger combined group that is more relevant and resilient," he says.

Prime shareholders are expected to vote on the scheme at a meeting in mid-December, and the parties are hopeful the merger will be implemented in early 2020, subject to court and regulatory approvals.

In parallel the Perth-listed company has announced it will divest Redwave, comprising its Western Australian radio assets, to Southern Cross Austereo (ASX: SXL) for $28 million, representing an FY19 Enterprise Value/EBITDA multiple of 8x.

"Through these actions, SWM will have a strengthened balance sheet, lower debt levels and improved efficiency in the delivery of content across a range of metropolitan and regional platforms," says Warburton.

The business includes Red FM and Spirit AM, and like the Prime Media proposal will be subject to approvals from shareholders as well as the Australian Communications and Media Authority (ACMA) and the Australian Competition and Consumer Commission (ACCC).

For that transaction regulators will most likely focus on Redwave's Spirit 621 licence in Southwest/Bunbury, where SCA already operates Hit and Triple M radio licences.

"Redwave Media is a logical acquisition for SCA, which already has Australia's largest regional radio network," says SCA chief executive officer Grant Blackley.

"Combined with our existing operations in Perth and to the south, the acquisition will provide SCA with comprehensive radio coverage in Western Australia and will further expand our reach and connection with local communities."

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