How to Sell a Donkey – Ask an “Expert”

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?


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.

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  1. Gotta love the ‘independent expert’ valuations.

    If anyone else in any other industry was as incompetent in their roles they would be sacked immediately!

  2. It’s a factor of how finance analysts are trained: Modern Portfolio Theory, CAPM/EMH etc is still taught verbatim in all “good” finance schools, whilst almost none have heard of Graham, Fisher, Buffett, Munger and others.

    Add that to an industry that gets an endless supply of free money to allocate each month (i.e your superannuation – well only 2/3rds as people come to their senses and manage it themselves) and its no wonder.