Kohlberg Kravis Roberts has decided to sell its 12 percent interest in Seven West Media almost seven years after its original 2006 investment, according to a statement from the firms.
KKR will exit all its shares at $2.21 per share, a 3 percent discount to its closing price on 21 May, with a source close to the matter confirming to Private Equity International the total deal price as A$265 million (€200 million; $260 million). KKR expects a “net positive” from the investment, despite Seven Media being one of many media companies that have suffered from a broad pull-back in advertising from Australian TV networks, according to a source familiar with the deal.
Both firms expressed disappointment that the partnership wouldn't continue, but explained due to pressures regarding fund terms and currency KKR was compelled to exit the business. The KKR fund that made the investment is reaching the end of its life, according to the statement, beyond which KKR declined to comment.
The reference to currency pressure is presumably to do with the strength the Australian dollar has shown over the past five years, on par with the US dollar today (A$1 = $0.98). This has sparked concerns among US investors as their investments in Australia become increasingly expensive to hold, with some LPs reluctant to commit to Australia in case the currency depreciates going forward, industry sources told PEI earlier.
However, KKR remains committed to Australia, having hired a new director in Sydney Diane Raposio in April. Raposio came from Deutche Bank in Australia where she headed the bank's leveraged debt capital markets team.
Our decision to sell our shareholding is based on a broad range of parameters on which we based our initial investment and how we sought returns for our investors
Justin Reizes, head of Australia, KKR
“This decision [to sell] was a tough one,” Justin Reizes, head of KKR Australia, said in a statement. “KKR has been a shareholder in and partner with Seven for seven years. Seven West Media is a great company with a terrific management team and a strong future. Our decision to sell our shareholding is based on a broad range of parameters on which we based our initial investment and how we sought returns for our investors.”
Seven also said in the statement it was “sorry to see KKR leave as a shareholder, [but] the company understands the pressure of funds as the term of the fund comes to an end and Australian currency pressures.”
KKR was unable to dispose of its shares until now due to confidential knowledge the firm held over the appointment of a new chief executive, Tim Worner, which was announced Tuesday.
The anticipated “net positive” return from the investment means
Seven West: 'sorry' to see
KKR has therefore fared better than fellow private equity investor CVC Capital Partners, which bore a $1.8 billion loss from its 2006-2008 investment in Nine Entertainment in Australia – the largest-ever private equity loss in Asia. The firm ceded control of the media business to senior lenders Apollo Global Management and Oaktree Capital Group in October last year.
“[CVC] bought it right at the top of the market and then we had the GFC and companies stopped spending on advertising, especially in the automotive sector – car manufacturers stopped spending on television and that really hit all the TV operators over here,” a media-focused analyst explained.