Seven Blasted For Shares Splurge

Sydney Morning Herald

Friday February 29, 2008

Miriam Steffens

SEVEN NETWORK faced a barrage of criticism yesterday after its revelation that it has pumped more than a quarter of its $2.6 billion cash pile into the volatile sharemarket.

Media analysts at Credit Suisse, Goldman Sachs JBWere, ABN Amro and Shaw Stockbroking all slashed their ratings for the broadcaster's stock to "sell", criticising its unexpected foray into equity investments. Merrill Lynch downgraded the stock to "neutral".

Kerry Stokes's Seven spooked investors on Wednesday when its finance director, Peter Lewis, said it had spent $715 million buying "high-yielding, highly liquid securities of major Australian companies".

He wouldn't give any details on the stocks, which have delivered Seven an 8percent book return as of this week, compared with a 10percent fall in the ASX200 since the start of the year.

Analysts acknowledged it was an impressive performance, but said the move finalised Seven's transformation from a TV and magazines business into a investment company, exposing shareholders to much higher risks than the cyclical up and downs of the advertising market.

"We view this strategy as risky given the current volatility in the stockmarket," said Finola Burke from Credit Suisse.

ABN Amro's Fraser McLeish warned that fund management wasn't a "core competency" for the company.

Seven now effectively consisted of a $1.7 billion cash war chest, a portfolio of unidentified listed shares, a 47-per-cent stake in a highly geared media joint-venture and Unwired, the struggling wireless broadband provider it bought last year, said Goldman Sachs JBWere's Christian Guerra.

"An investment proposition comprising these four components is not compelling," he said. "The level of uncertainty and potential loss is high."

Seven's equity investments triggered its biggest share slide in six months on Wednesday. Investors continued to sell the stock yesterday, driving it down a further 45cents to $11.65.

But not all shareholders shared the concerns. Paul Xiradis from Ausbil Dexia, Seven's biggest outside investor, said he would continue to back the company. "Seven have shown to be quite prudent in their acquisitions over time, and I believe that they're considerably prudent in their strategy," he said.

"If you take positions in stocks which are listed, you can't be too transparent."

Meanwhile, West Australian Newspapers said it would decide in coming days when shareholders would vote on Seven's proposal to sack all its non-executive directors and appoint Mr Stokes and his offsider, Peter Gammell, to the board.

© 2008 Sydney Morning Herald

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