Media message

Kerry Stokes’ decision to merge his private heavy equipment business with his Seven Network media business underlines the pressure on the media sector.

Kerry Stokes might own a big share in Australia’s top-rating commercial television channel, but this morning he and the independent directors at Seven Network have highlighted just how quickly the value of that once-prized asset is decreasing.

Stokes’ decision to merge his WesTrac heavy equipment business – its main asset is the rights to distribute the Caterpillar brand in parts of Australia and China – with his already listed media interests can be taken as a signal that conditions in Australia’s media industry are unlikely to improve any time soon.

The key line in the Seven statement on the deal was this: “The Seven directors have conducted a comprehensive review of potential media and telecommunications segment transaction opportunities for Seven and have concluded that the value-enhancing opportunities are limited.”

In other words, don’t be fooled by Seven’s decision to write up the value of its stake in the private equity joint venture Seven Media Group from zero to $380 million today. Seven’s media interests will continue to be reasonable assets, but Stokes and his team might have just about run out of ways to find growth in this sector.

The WesTrac business is likely to dominate the newly-merged entity, to be known as Seven Group Holdings.

According to the presentation made to investors today, WesTrac will account for a staggering 97% of the merged entity’s revenue in the 2011 financial year, which is forecast at $2.8 billion.

While Seven Group Holdings will retain the name of the famous television channel, make no mistake – this will be a heavy equipment business that just happens to have a few investments in the media sector.

Just as James Packer orchestrated his big switch out of media and into gaming, so too has Stokes changed the game.

Exit Kerry Stokes the media mogul, enter Kerry Stokes the mining baron.