Seven West Media has renewed its faith in its print media assets and expects an eventual turnaround in the moribund advertising market as it taps shareholders for $440 million.
Seven on Monday confirmed plans for a much-anticipated capital raising, saying the money would be used to reduce its $1.875 billion worth of debt but not to make acquisitions.
Chief executive Don Voelte said the capital raising was needed because the wider advertising market was subdued and likely to remain so in the near term.
However he believed the advertising market would pick up eventually for Seven, which owns the free-to-air Seven Network, The West Australian newspaper and Pacific Magazines.
“We’re not doing anything to reduce our dependency on advertising,” he told analysts.
“We’re trying to enhance it. It’s not like advertising is dropping off the end of a truck for us … we expect it to get stronger.”
Mr Voelte also took a shot at Fairfax over the newspaper giant’s expectation that the industry’s future lies in the adoption of digital technology.
He said Seven West still had confidence in the future of The West Australian and the industry.
He was taking a similar approach as American billionaire Warren Buffett who believed that in certain cities newspapers still work.
“We believe more in the Warren Buffett view than the Fairfax end-of-newspapers view,” Mr Voelte said.
Seven’s shares went into a trading halt before Mr Voelte outlined details of the capital raising.
Seven is offering a one-for-two accelerated renounceable entitlement of new Seven West Media shares at $1.32 each.
The offer represents an 18.5 per cent discount to Seven West’s closing share price of $1.62 last Friday.
Seven’s two largest shareholders, Seven Group Holdings and KKR, are taking up their full entitlements under the offer.
Fat Prophets analyst Greg Fraser said the capital raising was a good move as it would reduce Seven’s earnings before interest, taxes, depreciation and amortisation to debt ratio.
But he said he did not believe the advertising market would pick up any time soon, meaning Seven had to cut costs until it improved.
“I’m not sure there’s anything they can do to increase the revenue,” he said.
“That’s really up to advertisers to regain their confidence and spend more money.
“In the meantime, it’s up to the company to control its costs and they weren’t very explicit on what they were going on that front.”
Seven also flagged it now expects its full year underlying earnings to be about $473 million, slightly above its previous forecast of $460-$470 million.
And it said that from July 2013, Seven would pay annual dividends representing about 50 per cent of its net profit – subject to the company’s operating performance, market performance and financial position.
Shareholders will receive a dividend of six cents a share in October and April.
