Westrac, Seven merger needs communicating beyond the financial

For the economic analysts, shareholder associations and funds managers, the proposed merger of Kerry Stokes’ private company Westrac, into the listed Seven Network is at best an “unconventional proposal”.

At worst, it is viewed as an abomination, a proposal with nothing to recommend it; a whim or an exercise in personal power.

For the business press, the announcement of the proposed merger livened up a dull ending to a rainy month. Adele Ferguson in the Sydney Morning Herald business section on February 23, under the strapline Opinion & Analysis, suggested “Seven Network will morph into a rare breed of listed companies with a portfolio of businesses that have nothing in common” (my italics).

Ian Verrender on the same page and under the imaginatively cynical headline “Tractors and television make a lovely couple” suggested that “selling your privately owned business into the public company you control has never been a great look and is always guaranteed to trip the shark alarm”.

One analyst, Deloitte, imagined the proposed merger to be “fair and reasonable”.

If we take as a basic premise that a publicly listed company exists to make profit for shareholders, we need do nothing more than rationalise the proposal in terms of the bottom lines of both companies; Westrac has around $1 billion in debt (we can’t know the real numbers because it’s a private company) and Seven Network has around $1 billion in cash.

It’s too easy to see the private being bailed at the expense of the public and to conclude that Mr Stokes is up to mischief.

If however, we take a closer look at the actual sectors themselves, a look beyond the financial to that which the business journalists, analysts, fund managers and shareholder associations fail to see, we may find there are in fact some wholly decent synergies that make this merger a good long-term bet.

In this I am referring to the “culture” of the mining industry and the media and how culture might be communicated in a positive sense to stakeholders.

The headline over Verrender’s piece - “Tractors and television” - may reflect the objects that the mining and media sectors have at their disposal, but it is way off centre in providing a true image of the single culture that makes both of them peculiar and, highly valuable.

The culture that exists in mining and media is one and the same: contrary to Ms Ferguson’s comments above, they have everything in common - gung-ho, risky, immediate, blokey - all the things that individually terrify fund managers and collectively, present heart attack scenarios to shareholder associations and analysts.

Most businesses and governments today tend to be risk-averse - they look to the conservative in voters and shareholders and attempt to balance budgets and ROIs (return on investment) to keep the middle classes off their backs.

In the mining business stripping more dirt, blasting more coal, transporting and exporting ever increasing tonnages requires big investments in equipment, but it also generates an enormous feeling of satisfaction among those working in the industry; coal, iron ore, or any number of the extractive industries.

There is a sense of competition and camaraderie, a need for trust and credibility that locks in everyone from owners to engine drivers, from deputies to bath house workers.

Mining lives and dies by cultural codes built into the language, behaviour and operations of the industry. Westrac, and its supplier, Caterpillar Tractor Company of Peoria, Illinois, work hard to cultivate those codes.

So too the media lives and dies by them.

The same codes and the same risky, gung-ho immediacy are embedded in the media.

Proposing and developing new entertainment and drama programs, a sharper focus on news production and dissemination, and the risk associated with attracting advertisers to free-to-air television require an over-abundance of gung-ho.

And the gung-ho generates an enormous feeling of satisfaction among those working in the media.

This is not a revelation - there are no secret societies built into mining and the media; this is not a call for a senate inquiry into illegitimate work practices, inequity, or non-equal opportunity.

It is though, an observation on the stong, positive culture embedded in Westrac and Seven Network and why a merger will be hugely successful in the long run.

The success however, will pivot around the communication of the culture and whether Mr Stokes has the capacity to fire the imagination rather than continuing to provide mind-numbing pages of financial data to analysts, fund managers and non-Seven journalists.

So far, the proposed merger has been communicated as if it were in fact what the analysts suggest - a whim or exercise in personal power.

To get to the core of the merger, to understand what it is that drives these two industry sectors, to understand why they are so culturally similar, and to communicate this strength to diffuse stakeholder interests, is the key to the merger’s success.

Otherwise, it’s just another bit of whimsy from a corporate power broker.