Australian private equity firm Ironbridge Capital has made a $2.43 per share takeover for CanWest MediaWorks (NZ). Ironbridge Capital has an agreement with CanWest Global to secure their 70% shareholding. The offer of $2.43 implies an enterprise value of approximately $730 million and an EV-EBIT multiple of 14.

In March Valuecruncher estimated a mid-point valuation of $1.67 per share for CanWest MediaWorks but highlighted potential reasons for the stock trading over $2.00. One reason was the possibility of a private equity takeover offer arising from CanWest Global’s strategic review. Valuecruncher has re-run it’s March 2007 valuation from the private equity point of view. Based on the assumptions made in the analysis of the Yellow Pages transaction Valuecruncher has estimated a cost of capital (WACC) of 9% for a private equity firm acquiring CanWest MediaWorks. Based on the private equity assumptions Valuecruncher places a mid-point valuation of $2.50 a share with a range of $2.03 to $3.00, the Valuecruncher mid-point is slightly higher than the Ironbridge Capital offer of $2.43. Based on Valuecruncher’s analysis and recent private equity transactions we believe a private equity player could justify a higher offer but this is unlikely to eventuate given the lock-up agreement with 70% shareholder CanWest Global.

Valuecruncher Valuation Report – CanWest MediaWorks(NZ)

Valuecruncher places a value of $1.67 on each CanWest MediaWorks (CanWest) share with a valuation range between $1.32 and $2.05. The share price closed at $2.13 on 5 March 2007.

The current share price is significantly higher than Valuecruncher mid-point and lies outside the range implied from Valuecruncher’s sensitivity analysis. CanWest share price has increased steadily over the last 5 months ($1.32 on the 5th September 2006) peaking at $2.40 in early February. A number of external factors may have contributed to this dramatic price increase.

1. Changes in Australian media ownership regulations

In October Australia eased restrictions on the ownership of media companies. Key points were the removal of barriers to holding interests in multiple mediums such as radio, television and newspapersand the removal of restrictions on foreign ownership in the media sector. Crossholdings in multiple mediums will be restricted where a limited number of independent players are present and foreign investments of over 5% will require approval of the Treasurer.

2. CanWest Global Communications Strategic Review

Following the announcement of the relaxed Australian media ownership laws CanWest Global Communications commissioned Citigroup to explore the opportunities that may arise. CanWest Global Communications is the majority shareholder in CanWest MediaWorks (NZ) holding 70%.

3. Private Equity Acquisition Activity

Global acquisitions by private equity firms reached record levels during 2006 with private equity funds utilising shrinking credit spreads to outbid trade competitors in numerous acquisitions across a wide range of sectors.

The possible exit of majority shareholder CanWest Global Communications via a process involving a private equity bid could be contributing to the price appreciation observed over the last 5 months.

Key Assumptions 

Valuecruncher models revenues growing a 6% pa over the next 3 years based historic growth rates. EBIT margins are set at a constant 20% reflecting current levels.

Discount Rate (WACC) 

The discount rate used in the analysis is 11%.

Terminal Growth 

The terminal growth rate is set at 3%.

CanWest MediaWorks Valuation