Options Windfall For Seven Bosses

Sydney Morning Herald

Thursday October 30, 2008

Miriam Steffens

TOP executives at Kerry Stokes's private equity joint venture, Seven Media Group, owner of the Seven Network, will be able to share in the riches when the company is sold or returns capital, having received interest-free loans to buy options for $70 million.

The leading nine executives, believed to include the chief executive, David Leckie, as well as 39 other senior executives, were offered the interest-free loans last November instead of their 2007 and 2008 bonuses to buy 21.6 million options at $1 each.

Those options have no hurdles or vesting conditions and give their holders the rights to shares or cash when the venture pays dividends or returns any capital, Seven Media documents show.

The executives were issued a further 48 million options, participating in a second package with performance hurdles. Half of those options, with a strike price of $1, will vest progressively over five years while the other half depend on reaching profit targets in the years up to 2011.

The executives were not named and it is not clear what the expected returns are. Seven Media now has only 10 ordinary shares, but there are 371.7 million notes valued at $1 each that can be converted to shares from next year.

At the listed Seven Network results, Mr Leckie's pay was reduced from $3.4 million to $938,234 to account for his undisclosed paypacket from the private equity joint venture.

Seven sold half of Seven Media, which also includes Pacific Magazines and the online joint venture with Yahoo, to the US buyout firm Kohlberg Kravis Roberts in October 2006 for $3.2 billion. Including borrowings, the deal valued the media assets at about $4 billion.

In August the listed Seven Network valued its 47 per cent stake in Seven Media at $712.4 million.

The documents obtained by the Herald show Seven Media posted $348.7 million in operating earnings in the year to June, as Channel Seven's rise to the top of ratings boosted advertising. But its net loss widened 21 per cent to $47.7 million because of the interest bill on its debt, preventing any dividend payments to its owners. The company had $407 million in finance costs to service its $3.5 billion debt pile.

Private equity players like KKR typically hold their assets between three to five years before they seek to exit at a profit, but with the credit squeeze and a looming ad recession they may take a longer-term view.

Mr Stokes has said the US buy-out firm had no firm timeframe. "The timing of their exit depends on how the investments perform," he said earlier this year.

© 2008 Sydney Morning Herald

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