For immediate release: Monday, 21 February 2011 WAN proposal to acquire Seven Media Group for $4,085 million and undertake associated capital raisings of $1,154 million The combination of WAN and Seven Media Group (SMG) will transform WAN into a national multi-platform media business with earnings driven by: Australia s leading free-to-air (FTA) television network; the No. 1 newspaper publisher in Western Australia; Australia s second largest magazine group; and one of Australia s leading online platforms WAN shareholders to vote on the Proposed Transaction at an Extraordinary General Meeting (EGM) to be held on 11 April 2011 The Independent Directors of WAN unanimously recommend the Proposed Transaction The Independent Expert has concluded that the Proposed Transaction is fair and reasonable to WAN shareholders (other than SGH and any WAN shareholders associated with SGH) 1 WAN to conduct a fully underwritten accelerated 4 for 7 non-renounceable pro rata Entitlement Offer of Convertible Unsecured Loan Securities (CULS) at $5.20 per security to raise $653 million and a fully underwritten Public Offer at $5.20 per share to raise $40 million WAN will also conduct a placement of approximately $461 million WAN Shares to funds affiliated with KKR, mezzanine investors and members of management relating to SMG (the KKR Investment) West Australian Newspapers Holdings Limited (ASX: WAN or the Company) today announced the proposed acquisition of SMG for an enterprise value of $4,085 million, which will create a highly diversified, national multi-platform media business. SMG is owned by entities associated with Seven Group Holdings Limited (SGH) (ASX: SVW), funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (KKR), mezzanine investors and members of management relating to SMG. SGH is WAN s largest shareholder with an interest in the Company of 24.3%. The terms of the proposed acquisition and associated capital raisings are detailed in the summary below (the Proposed Transaction). 1 The Independent Expert s Report has been prepared for the sole use by WAN Shareholders with respect to their decision whether or not to approve the resolutions required by ASX Listing Rule 10.1 and item 7 of section 611 of the Corporations Act. A copy of the Independent Expert s Report has been lodged by WAN with the ASX and ASIC. 1
The Combined Group will be named Seven West Media and will remain listed on ASX, with a new ticker of ASX: SWM post completion of the Proposed Transaction. Seven West Media will comprise wholly-owned operating businesses and key strategic joint ventures including: 100% of WAN, which owns the leading metropolitan newspaper in Western Australia, 21 West Australian regional newspapers, nine regional radio licences, a specialist publishing business and WAN s digital division; 49.9% of the Community Newspaper Group, a publisher of 17 newspaper titles across Perth; 100% of Seven Network, Australia s leading FTA television network; 100% of Pacific Magazines, Australia s second largest magazine business by readership; 50% of Yahoo!7, one of Australia and New Zealand s leading online platforms, with global and local content across online, mobile and IPTV; and 33% of Sky News, a leading 24-hour news channel in Australia and New Zealand. Independent Directors' Recommendation The consideration and negotiation of the Proposed Transaction has been under the supervision and control of WAN s Independent Directors, Mr Doug Flynn, Mr Graeme John AO, Mr Don Voelte and Mr Sam Walsh AO (the Independent Board Committee). The Directors of WAN associated with SGH, Mr Kerry Stokes AC and Mr Peter Gammell, have stood aside from all Independent Board Committee considerations and decisions concerning the Proposed Transaction. On behalf of the Independent Board Committee, Mr Doug Flynn said: This transaction presents an opportunity to comprehensively transform WAN into a diverse and integrated national media business in one step." While WAN occupies an attractive niche as the leading media business in the West Australian market, it must look to the future. Combining these two businesses will create a substantial and diverse combination of traditional and new media platforms to enhance WAN s ability to compete effectively in the ever changing media landscape." Consumer trends and the regulatory environment are underpinning the potential value in FTA television and online media formats. Acquiring SMG provides us with exposure to FTA television, digital multi-channel growth, and a direct interest in the Yahoo!7 joint venture." The Proposed Transaction will give WAN a high quality earnings base, well diversified by platform and geography. It will also provide WAN with substantially enhanced access to content with cross-selling and synergy opportunities." 2
The direct interest in the Yahoo!7 JV will enable WAN to fast-track its online strategy." The Independent Directors of WAN, Mr Graeme John AO, Mr Don Voelte, Mr Sam Walsh AO and I unanimously recommend the Proposed Transaction to WAN shareholders, in the absence of a superior proposal, Mr Flynn said. Shareholders in WAN not associated with SGH will be asked to vote on the Proposed Transaction at the Company s EGM to be held on 11 April 2011. Seven Group Holdings Commenting on the Proposed Transaction, Mr Kerry Stokes AC said: This transaction will transform WAN into the largest listed Australia-domiciled media company. SMG s major shareholders will retain substantial interests in WAN. SGH s commitment to the combined business is demonstrated by the fact that it will acquire its interest in WAN at a higher price per share than WAN shareholders will pay under the Entitlement Offer." This transaction is an opportunity for Australian shareholders to gain exposure to some of the best media assets in Australia with the combined business leveraging the highly successful management teams from both WAN and SMG, said Mr Stokes. Rationale / Benefits of the Proposed Transaction The Independent Board Committee considers that the Proposed Transaction will deliver significant benefits for WAN, including: Business diversification across a range of media formats including Australia s leading FTA television network, the second largest magazine group in Australia by readership and one of Australia and New Zealand s leading online platforms; Geographic diversification with the operations of the Combined Group, to be named Seven West Media, covering all major Australian metropolitan markets and, when including arrangements with regional affiliates, reaching the majority of Australia s population; SMG s digital multi-channelling and online properties providing WAN with new growth avenues where consumer trends and the regulatory environment are underpinning the potential value in FTA television and online media formats; Exposure to the recovery in media advertising spend across all media formats; Synergistic benefits, including access to content and the value of deploying it across different formats, from magazines to newspapers to online sites; The ability to harness the online business expertise embedded in the Yahoo!7 joint venture, which is expected to enable WAN to fast track its online strategy; 3
Immediate value accretion for WAN, including earnings per share (EPS) accretion of 6.8% based on the forecast pro forma financial year ending 30 June 2011 2 ; and Balance sheet strength and the ability to pursue growth opportunities as they arise. Board and Management As part of the Proposed Transaction, WAN s existing Board membership will remain intact. In addition, Mr David Leckie is to be appointed Group CEO and Managing Director of the Combined Group, and will be appointed to the Board. KKR, which would become WAN's second largest shareholder, may also nominate a Director following completion of the Proposed Transaction. The executive management team of the Combined Group would also include Mr Peter Lewis (Group CFO), Mr Bruce McWilliam (Commercial Director), Mr Chris Wharton (CEO, WAN / WA Media) and Mr Peter Bryant (CFO, WAN / WA Media). Independent Expert s Report The Independent Board Committee appointed Ernst & Young Transaction Advisory Services Limited (Independent Expert) to prepare an Independent Expert s Report (IER) on the Proposed Transaction. The Independent Expert has concluded that the acquisition of SMG and issue of WAN shares and CPS to SGH is fair and reasonable to WAN shareholders (other than SGH and any WAN shareholders associated with SGH). The Independent Expert s Report will be included in the Notice of EGM and Explanatory Memorandum which are expected to be despatched to Shareholders following ASIC review on or around 11 March 2011. The Independent Expert s Report may need to be updated to reflect any material changes in market conditions and circumstances prior to the date of issue of the Notice of EGM and Explanatory Memorandum. The Independent Expert s Report has been prepared for the sole use by WAN Shareholders with respect to their decision whether or not to approve the resolutions required by ASX Listing Rule 10.1 and item 7 of section 611 of the Corporations Act. A copy of the Independent Expert s Report has been lodged by WAN with the ASX and ASIC. 2 Based on diluted EPS calculated assuming the Combined Group was together for the full year FY11F (with SMG's pro forma net debt of $1,654 million remaining constant) and forecast synergies as set out in Section 6.10 of the Prospectus but excludes any one-off costs associated with the synergies, any additional amortisation resulting from the final purchase price allocation or transaction costs. WAN expects identified synergies to be implemented in full during the remainder of FY11 and FY12. WAN s standalone FY11F diluted EPS is before transaction costs. Refer to the calculation set out in Section 6.10 of the Prospectus. Basic EPS accretion of 13.1% on the same basis 4
Summary of the Proposed Transaction Key transaction terms are as follows: Post the restructure of SMG s ownership, WAN has contracted to acquire 100% of SMG from SGH for an enterprise value of $4,085 million comprising: $1,081 million in WAN Shares issued to SGH at a price of $5.99 per WAN Share, being a 3.2% premium to TERP 3 ; $250 million of WAN Convertible Preference Shares (CPS) issued to SGH; $650 million repayment of SGH loan owed by SMG; and $2,104 million of external net debt assumed 4 (before debt reduction of approximately $450 million to $1,654 million). WAN will also conduct a placement of approximately $461 million WAN Shares to KKR, mezzanine investors and members of management relating to SMG at a price of $5.99 per WAN Share, being a 3.2% premium to TERP 3. Under KKR s Subscription Agreement, subject to KKR and mezzanine investors aggregate shareholding remaining above 10%, KKR may nominate one nominee Director to the WAN Board following completion of the Proposed Transaction; WAN will also conduct a fully underwritten accelerated 4 for 7 non-renounceable pro rata entitlement offer comprising an institutional offer and a retail offer (together, the Entitlement Offer) of Convertible Unsecured Loan Securities (CULS) at a price of $5.20 per security to raise $653 million. CULS are convertible loan securities which will convert into ordinary shares on completion of the Proposed Transaction or otherwise be repaid with a redemption premium; WAN also intends to conduct a fully underwritten general public offer of new WAN shares providing the opportunity for new and existing shareholders to subscribe for $40 million of WAN shares at $5.20 per share (the Public Offer). Settlement of the Public Offer will only occur if the Proposed Transaction proceeds; Proceeds from the Entitlement Offer, Public Offer and the KKR Investment will be used to reduce the Combined Group s debt by approximately $450 million, repay the SGH loan of $650 million owed by SMG, pay transaction costs of $45 million, with the balance used for general corporate purposes; WAN shareholders (excluding interests associated with SGH) will be asked to vote on the Proposed Transaction at the Company s EGM to be held on 11 April 2011; and The Proposed Transaction is subject to ACCC approval, as well as other customary conditions. 3 4 Equates to the theoretical WAN share price (adjusted for the 1H11 dividend) after allowing for the impact of the pro rata Entitlement Offer. Refer to Section 6.10.8 of the Prospectus for further details As at 25 December 2011, pursuant to the Share Sale Agreement 5
As part of the Proposed Transaction, SGH will sell its existing 24.3% interest in WAN and not take up its entitlement under the Entitlement Offer, such sale being conditional upon the Proposed Transaction being completed. SGH will subsequently receive $1,081 million in WAN shares as partial consideration for SMG resulting in an increased shareholding of approximately 29.6% in WAN (excluding any further increase resulting from a conversion of CPS). In addition, SGH will also receive $250 million of WAN CPS, resulting in a total investment in WAN of approximately $1,331 million. WAN Shareholder Meeting The Proposed Transaction will be conditional on WAN shareholders passing certain resolutions at the Company s EGM to be held on 11 April 2011. SGH and its associates will be excluded from voting on a number of those resolutions. Detailed information concerning the Proposed Transaction, including its advantages, risks and disadvantages and the Independent Expert s Report, will be set out in the Notice of Meeting and Explanatory Memorandum document to be despatched to WAN shareholders on or around 11 March 2011. WAN shareholders should consult their accountant, tax adviser and/or financial adviser if they are uncertain about the impact of the Proposed Transaction on their particular investment objectives. WAN Entitlement Offer WAN will raise $653 million through a fully underwritten Entitlement Offer. The Entitlement Offer enables eligible WAN shareholders to acquire 4 CULS for every 7 existing ordinary WAN shares they hold at 7.00pm Australian Eastern Daylight Time (AEDT) on 24 February 2011. The Issue Price of $5.20 per security represents a 15.4% discount to WAN s dividendadjusted closing share price of $6.15 5 on 18 February 2011, and a 10.4% discount to the Theoretical Ex-Rights Price (TERP) 6. If the Proposed Transaction proceeds, CULS will convert into WAN ordinary shares on a 1 for 1 basis. If the Proposed Transaction does not proceed, then CULS will be redeemed and WAN shareholders will be repaid the money they have invested plus a redemption premium of between 2.5% to 4.5% 7 of the Issue Price. 5 6 7 Adjusted for the 1H11 dividend of 19.0 cents per share. New Shares issued under the Public Offer and WAN Shares issued on any conversion of CULS will not be entitled to the 1H11 dividend. Equates to the theoretical WAN share price (adjusted for the 1H11 dividend) after allowing for the impact of the pro rata Entitlement Offer. Refer to Section 6.10.8 for further details. In the event of a delay in the timetable, the Redemption Premium will increase at a rate of 1.0% per month so that the Redemption Premium where the Redemption Date occurs in May 2011 will be 3.5% of the Issue Price and where the Redemption Date occurs in June 2011 it will be 4.5% of the Issue Price. 6
WAN Public Offer WAN also intends to raise $40 million through a fully underwritten general public offer of new WAN Shares to be issued at $5.20 per share. If the Proposed Transaction does not complete, the Company will not proceed with the Public Offer. Further information regarding the WAN Entitlement Offer and WAN Public Offer is contained in the Prospectus lodged with ASIC today and expected to be despatched to shareholders on or around 3 March 2011. WAN first half financial results WAN today also announced its financial results for the first half of the financial year (1H11), reporting a profit after tax of $50.1 million for the six months to 31 December 2010. Further details of WAN s results are contained in a separate announcement. WAN CEO, Chris Wharton, said: The solid result continues to demonstrate the strength of WAN s position in Western Australia and the work we have undertaken to maintain the high standard of our media assets in this market. The Board of WAN has declared an interim dividend of 19 cents per share for 1H11. New shares issued under the Entitlement Offer and Public Offer will not be entitled to this dividend but will be entitled to all future dividends. 7
Proposed Transaction Timetable WAN institutional Entitlement Offer period 21 to 22 February 2011 Opening of the Retail Entitlement Offer, opening of applications for Public Offer, despatch of WAN Prospectus 3 March 2011 Despatch of WAN Notice of Meeting and Explanatory Memorandum to WAN Shareholders 11 March 2011 Close of Retail Entitlement Offer 2.00pm Perth time 5.00pm Sydney time on 18 March 2011 WAN Extraordinary General Meeting 11 April 2011 Close of the Public Offer 3.00pm Perth time 5.00pm Sydney time on 13 April 2011 Further details regarding the Proposed Transaction and the transaction timetable will be outlined in a letter to be sent to WAN shareholders today by the WAN Independent Directors. Shareholders should wait and consider the various documents which will contain further information and instructions on how to participate in the Entitlement Offer and Public Offer and how to vote on the Proposed Transaction. WAN shareholders do not need take any action until they receive these documents over the coming weeks. If, in the meantime, shareholders have any queries they can contact the WAN shareholder information line on 1300 133 562 (within Australia) or +61 3 9415 4603 (outside Australia) between 6.00am and 5.00pm Perth time (9.00am to 8.00pm Sydney time 8 ), Monday to Friday during the Entitlement Offer Period or the Public Offer application period (as applicable). You can also access important information at the website on the Proposed Transaction at www.sevenwestproposal.com.au. 8 From 4 April 2011 the WAN Offer Information Line will be open 7.00am to 5.00pm Perth time (9.00am to 7.00pm Sydney time) to reflect the end of Australian Eastern Daylight Time 8
O Sullivan Partners acted as the financial adviser to WAN and Allens Arthur Robinson the legal adviser. Joint Lead Managers and Underwriters of the Entitlement Offer and Public Offer are J.P. Morgan and UBS. For further information please contact: Mr Doug Flynn Non Executive Independent Director West Australian Newspapers +61 8 9482 3023 Mr John Frey Principal Cosway Australia +61 411 361 361 Mr Tony O Sullivan Managing Partner O Sullivan Partners +61 2 9258 8514 Mr Garren Cronin Partner O Sullivan Partners +61 2 9258 8514 Overview of Seven Media Group (SMG) SMG is one of Australia s leading media companies with an integrated portfolio of assets including FTA television, magazines and a 50% interest in the Yahoo!7 online platform. The Seven Network, incorporating SMG s main channel Seven and digital channels 7TWO and 7mate, is Australia s leading FTA television network by audience and advertising revenue, reaching over 75% of Australia s population (over 98% when regional affiliates are included). Seven has maintained its leading position in audience share by investing in quality local productions such as Seven News, Packed to the Rafters and Dancing with the Stars. Pacific Magazines is Australia s second largest magazine business by readership and publishes some of Australia s most popular and successful magazine titles such as Better Homes and Gardens, That s Life! and New Idea. The magazine portfolio includes over 25 titles which together account for over 27% of the magazines advertising market. Yahoo!7 is a 50:50 joint venture with Yahoo! Inc and one of the largest online media businesses in Australia and New Zealand. Every month, one in every two online Australians visits Yahoo!7. Yahoo!7 is Australia s most popular website by unique browser visits within the sport, finance and lifestyle viewership segments. SMG is currently owned by Seven Group Holdings Limited (ASX:SVW), funds affiliated with Kohlberg Kravis Roberts & Co. L.P., mezzanine investors and members of management relating to SMG. 9