When he arrived in August last year, new Seven West Media boss James Warburton promised to enlarge the ailing media company by hunting down and buying businesses.
But now, just six months later, the veteran media executive is dealing with the fallout from the failure of his first takeover bid, an effort to take control of regional affiliate Prime that would have transformed Seven’s dismal finances.
After being stymied in their bid for Prime, Warburton and Seven’s biggest shareholder, West Australian billionaire Kerry Stokes, would be painfully aware that time is ticking to repay or refinance the $683m it owes to a syndicate of banks.
The first instalment is due in November next year, and if it cannot satisfy its lenders, Seven could go the way of fellow broadcaster Ten and fall into administration.
Warburton’s freedom to move is also constricted by his pledge to rip $100m in costs out of Seven, a move taken with at least one eye on the need for the company to stay within strict financial constraints set by its banks as a condition of their loans.
This, along with the ratings failure of this year’s season of My Kitchen Rules and the possibility that this year’s Olympics could be cancelled due to the coronavirus crisis, will make it harder for him to achieve his other ambition, restoring Seven to its place as the TV network with the most viewers.
All this is taking place in a commercial TV industry that is in a grim situation, as demonstrated by financial results released by Seven and its long-time rival Nine over the past fortnight, and a broader media landscape that isn’t much better.
Seven declared a loss for the half-year to the end of December of $67.4m, a dramatic fall from the $117m booked for the same period in the previous year, after writing down the value of its broadcasting licence.
Warburton has been through the commercial TV mill before. He was sacked as chief executive of Ten by the board – then chaired by Lachlan Murdoch – in 2013.
That means he can’t be blamed for Ten’s subsequent collapse, in 2017, after two key shareholders, Murdoch and Bermuda-based billionaire Bruce Gordon, refused to continue their guarantee of a $200m loan.
The Prime deal – and Antony Catalano
The Prime deal was an obvious play for Warburton because just before becoming CEO of Seven, he was reportedly leading a private equity-backed consortium that mulled taking over Prime.
Sources say the Seven board was initially attracted to Warburton as a contrast to the previous CEO, Tim Worner, who had been wounded by a scandal over his affair with a staffer.
“All of a sudden you’ve got what a board wants to hear – someone who unlike Tim has creative ways to build momentum,” an industry source said.
However, there is no doubt that under Warburton Seven invested heavily in the Prime deal – the company estimated it would spend $2.8m just to pull it off, in an industry where every penny counts.
The rewards would also have been great, with $11m in cost savings a year to be made by combining the company’s operations.
Seven would also have been bolstered by Prime’s financial strength – unlike its big city cousin, the regional broadcaster’s balance sheet is all but free from debt.
The deal was endorsed by Prime’s board, headed at the time by former News Corp executive John Hartigan.
But in December it fell apart after opposition from two key shareholders – Gordon, who controlled 11% of the stock, and a company called WA Chess, controlled by mini-mogul Antony Catalano and billionaire Alex Waislitz.
Catalano, a former journalist from Melbourne, made his name – and fortune – by building a rival group of glossy local newspapers after leaving Fairfax. He sold the group to Fairfax, which spun it into the Domain group, where he was CEO until leaving in 2018. Waislitz, the former son-in-law of box king Richard Pratt, is Catalano’s financial backer.
He bankrolled Catalano’s purchase of Australian Community Media, a string of former regional papers Nine sold after taking over Fairfax Media in 2018.
These include mastheads in WA, sparking a stoush over printing with Seven’s West Australian News, which has newspapers in the state including the West Australian and a string of regionals.
As part of the ACM deal, Catalano acquired a printing press in Mandurah that was geared up for the big page counts – 200 or more for the Mandurah Mail – and large circulations of print’s golden era.
“It was tremendously profitable and booming in those halcyon days of 2012-13,” a source with knowledge of Fairfax Media’s operations in WA said.
“They’d be struggling now, like all printing operations.”
Industry sources say Catalano would like to save money by closing Mandurah and printing on Seven’s presses.
“It was not considered a poor performer but clearly any consolidation with WAN would save costs for both sides,” another source with deep knowledge of Fairfax’s former regional network said.
Unfortunately, Catalano’s role in the Prime caper appears to have soured Stokes on the idea.
“I don’t think Kerry’s inclined to do anything for him,” one senior industry source said.
“The way that was left after the failed takeover … I just can’t see them doing any favours for Antony.”
Asked whether there had been any discussions about a print deal with ACM, Seven’s spokesman said: “Any commercial discussions SWM is having with any party are confidential.”
Catalano didn’t respond to Guardian Australia’s request for comment.
But a source close to Catalano played down his responsibility for the collapse of the Prime deal.
“I reckon ego got in the way of closing it,” the source said.
“Bruce and Ant were probably sellers at the right price.”
Warburton is not without options. He has already sold the WA radio business, Redwave, for $28m in much-needed cash.
Also in the works is the sale of Pacific Magazines, home of titles including New Idea, to rival Bauer, which will reap $40m but is opposed by the competition regulator.
Seven is also looking at selling its production studio, which makes programs including soap opera Home & Away.
UBS analyst Eric Choi thinks it could fetch as much as $400m.
In a note to clients, Choi also said Seven could reap $75m by flogging off land belonging to WAN and leasing it back.
These sales would “offset a large portion” of the company’s debt pile, he said.
Critics say the sales program will shrink the company’s earnings because much of what is on the block makes money.
And it is not clear how much debt Seven needs to get rid of to satisfy its bankers.
Seven’s spokesman refused to say how much of the pile falls due in November next year, or clarify the debt covenants to which it has agreed with the banks.
“They’ve got all sorts of banking restrictions they’re going to hit soon,” a well-placed source said.
Seven’s spokesman said the media market was “uncertain”.
“To counter uncertainties the directors approved actions to ensure adequate covenant headroom,” he said. “SWM remains well within covenant levels.”
At the same time, industry sources insist the psychological blow of losing the spot as number one network to Nine has real consequences.
“The most significant thing is that they’ve been usurped as the number one network,” one source said.
“That can change the whole sense of their performance.
“Nine has all the momentum, even though it’s a pretty narrow lead.”
