Citi says to take profits on Seven
Citi has downgraded Seven Network (SELL, price target $7.30), unconvinced by the value of the WesTrac deal. The broker argues that the SEV shareholders will face a greater risk profile following the merger.
Citi noted that the Independent Expert values the new SGH shares at a lower range than their valuation of SEV shares. SGH’s valuation range for minorities is $7.08 to $8.57, and SEV’s valuation range for minorities is assessed at $7.14 to $9.18, the broker says.
Citi says minority shareholders in SEV would be exposed to a raft of additional risks, including currency risk on pricing, credit risk on customers, country risk, competitive threats, and as noted above, potential capital demands to finance the growth.
The brokers says the merger provides of use for SEV’s $1 billion cash, but argues that a buyback of SEV shares, while delivering a greater valuation range, delivers a higher mid-point than the status-quo or merger.
Citi says it is unlikely that an alternative offer will emerge, urging investors to take advantage of the recent rally to take profits.
SEV shares were trading at $7.76 prior to the open of trade Friday.
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