KKR faces portfolio company writedown

Seven Media Group, in which Kohlberg Kravis Roberts invested $735m in 2006 for a 50% stake, is valued at zero. The Australian group owns Seven's television and online businesses as well as its stable of printed magazine titles.

Australia’s Seven Network, among the top television networks in Australia, has written down the value of its 47 percent stake in Seven Media Group (SMG), a joint venture with Kohlberg Kravis Roberts, from A$794 million (€404 million; $515 million) to zero.

The joint venture was formed in 2006 with KKR investing approximately $735 million for a 50 percent stake.

Included in the SMG joint venture were Seven’s television, magazines and online businesses. The combined platform was intended to provide the two owners with a vehicle to pursue media opportunities in Australia and New Zealand.

Valued at around A$4 billion, the transaction also included debt financing from Morgan Stanley, Mizuho, Goldman Sachs and Citigroup, of which approximately $2.5 billion was to be drawn down once the deal had closed. 

In total, Seven received cash proceeds of approximately $3.2 billion and retained a 50 percent stake in the venture, which has since been reduced to 47 percent.

Seven Network said in its half-yearly results for the period ending 31 December 2008 that the writedown in the value of its investment in SMG to zero “reflects the continuing deterioration of the advertising market”.

Kerry Stokes, chairman of Seven Network, said that the revaluation of SMG was a “conservative” measure, according to The Australian. “Although we've written down the value of the assets in accounting terms, make no mistake, the Seven network means an awful lot to Seven Network,” he told the paper.

He added there is no indication yet that SMG will breach covenants on its debt of approximately $2.5 billion.

The valuation of the company was calculated “in accordance with the accounting requirements”, a KKR spokesman told the newspaper. He added that both KKR and Seven continue to have confidence in the company.

The news is further evidence of the struggling Australian media sector. In November 2008, CVC Asia Pacific injected A$335 million into its portfolio company PBL Media, another Australian media conglomerate, in order to recapitalise the company and to prevent it from defaulting on its debt covenants.

KKR was unavailable for comment.