KKR invests in Seven Network

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SYDNEY -- Kerry Stokes' Seven Network Ltd. is to fold its media assets into a joint venture with U.S. private equity investors Kohlberg Kravis Roberts in a AUS$4 billion (US$3 billion) deal which mirrors the spin off of rival Publishing and Broadcasting's media assets into a joint venture with CVC Asia Pacific last month.

Under the deal, announced to the Australian Stock Exchange on Monday, the new company, to be known as the Seven Media Group, will consist of the Seven Network's television interests, its magazine division Pacific Magazines and its online joint venture with Yahoo, Yahoo7.

The Seven Media Group will be used to pursue other media acquisitions as a rationalization of the Australian media sector continues, following last month's loosening of cross media and foreign ownership rules, which will come into effect next year.

Seven Network chairman and 43% owner Kerry Stokes, said Seven and KKR "have the know how to build and expand on the strength of the Seven media business".

"Today's agreement delivers to Seven ... a venture with the strategic and financial flexibility to take advantage of the dynamics of the Australian and New Zealand media landscape," Stokes said.

KKR founding partner George Roberts said Seven has "tremendous momentum and is well positioned to benefit from changes in the media environment. Added KKR director Justin Reizes: "Seven is Australia's best performing media business. There's a real vision of where to take it and we've found a great partner."

In a conference call with analysts and media, Stokes would not be drawn on potential acquisitions, either for the new group or his cashed up Seven Network Ltd.

He said their "primary love" was broadcasting, and the online and magazine businesses.

"Where we can see expanding that, where it makes sense, that's what we'll be looking at primarily, whether it's in Australia or New Zealand," he said.

"I think we see Yahoo7 as being one of the areas we expect to see very strong growth in. KKR group is particularly enthusiastic about our involvement with Yahoo and where that was now going with their new technologies," he added.

He did not rule out taking a stake in local newspaper group, Fairfax Media, or looking outside Australia and New Zealand.

"Whether that was in Asia, in China or Australia would depend on the circumstance of the transaction," he said.

KKR will invest AUS$735 million (US$558 million) for a 50% stake in the Seven Media Group while Seven Network Limited will receive AUS$3.2 billion (US$2.4 billion) in cash.

A banking consortium including Morgan Stanley, Mizuho, Goldman Sachs and Citigroup will provide financing of AUS$2.5 billion (US$1.9 billion) to the Group with another AUS$350 million (US$266 million) acquisition facility available.

Stokes will be chairman of the Seven Media Group and will remain executive chairman of Seven Network Limited. Seven's broadcast television CEO David Leckie will be CEO of Seven Media Group, and Seven executive Peter Lewis will become chief financial officer. They will retain their roles with the Seven Network.

Seven has been in a tight tussle with rival the Nine Network as the top rating TV network this year, with Nine on a 35.7% all people commercial share against Seven's commercial share of 35.6%. Seven however has built its audience by 1.2 points this year while Nine's has declined by 3.2 points.

Seven's earnings will increase by 40-45% this half of the current financial year thanks to its ratings growth, Stokes told shareholders at the company's annual general meeting earlier this month.
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