The Prince sent me a link this morning to an article in the Oz about the WAN-7 Merger, which I wrote about a couple of weeks ago. This quote in the article had me painfully coughing up my Weeties through my nose:
“An independent expert’s report found Seven Media was worth between $519m and $986m more than WAN was paying for it.”
Now, WAN (West Australian Newspapers) is paying just a touch over $4 billion for the Seven Media Group (SMG) assets. This is made up of $2billion in new debt and $2billion in new capital. If these “independent experts” are to be believed, then the SMG assets are worth $4.5 to $5billion.
In exchange for $4.5 billion of “value”, the good managers at WAN expect to increase their FY11 NPAT by $200 million dollars. That’s a return of investment of 4.4%. Now your blogger is no financial industry genius, but I fail to see how these “experts” came up with this valuation. I can take my pick of any online savings account and get a better return than 4.4%. If anyone knows these experts, please give them my number and I’ll offer to manage their finances for them. If all their looking for is 4%, I’ll whack their hard earned FIRE incomes into a 6% ING account and take one third of their profits for my troubles. Easy money.
Let’s look at the merger from another perspective – equity. WAN’s equity base will increase from about $150million to $2.4billion, whilst NPAT will increase from $100million to $300million for FY11 . That’s a 16 fold increase in equity to deliver a 3 fold increase in profits. Does that sound like a good proposition to you?
No.
This deal is bad for WAN investors, who are voting with there feet by only taking up 14% of their retail capital entitlement.
If anyone can spot the $4.5billion dollar value in the SMG group – which earns $200million per annum and is actually listed with negative equity in the WAN-7 merger prospectus – please shout it out. Because I have a feeling the independent experts may have been high when they put their valuation together.
Now back to breakfast.