Wednesday, January 23, 2008

Ominous Scions: Murdoch and Packer plot Australian media's future

The two most dominant names in Australia media came together again this week when Lachlan Murdoch and James Packer announced a $3.3 billion bid to take over Consolidated Media Holdings (CMH). Packer's Consolidated Press Holdings (CPH) is the major shareholder in CMH and they are combining with Murdoch’s private company Illyria to buy out the remaining shareholders. The deal is contingent on whether CMH shareholders consider the $4.80 share price adequate.

If the deal is approved, Murdoch will become the newly privatised vehicle's executive chairman. He has declared he wants to take on a “hands on” role. He said the main attraction is the growth potential in the Pay TV assets but he also wants to get involved with Channel Nine as well. "This is going to be my focus over the years to come if we're successful," he said. "I ran 35 TV stations in the US while I was there, obviously I understand print businesses very well, so I'd hope I could I add value if CVC and the management of PBL Media were interested in my opinions.”

It is his reference to the newspaper business that worries many analysts. Murdoch vehemently denies his side of the funding is related to his father Rupert’s massive News Corp organisation which is already the largest media empire in Australia. Murdoch jnr resigned from his executive positions at News Corp in July 2005 but remains on the international board in a non-executive capacity. Murdoch said he had no plans to leave the board, because CMH businesses didn't compete with News Corp operations. Writing in Crikey today, Glenn Dyer asked where the money was coming from to finance the bid and suggested banks were coming to the party because Rupert Murdoch has provided guarantees for his son’s share.

Also writing in Crikey, Margaret Simons has similar concerns. She questioned whether Lachlan Murdoch can, as he claimed, “add value” to the assets. She says there must be more to the deal than is currently in the public domain as asset strength is not a primary consideration for venture capitalists. Simons believes that Murdoch’s most important weapon is his “contact book” which he has extraordinary leverage over through his family.

Certainly the assets in question are extremely valuable. CMH was formed just three months ago when Packer split up his father Kerry’s Publishing and Broadcasting Limited (PBL) empire into a media and a gaming arm based on the Melbourne Crown casino. At the time Packer pumped most of his cash into the gaming side of the business. Despite his divestment, CMH remains a big player in the Australian media scene. It owns 25 per cent of the Nine Network, Pay TV operator Foxtel, and Australia’s biggest magazine publisher ACP (publisher of the titles Women's Weekly, The Bulletin and Woman's Day). It also has an option to buy-out the remaining 75 per cent of these assets if private equity owners CVC decide to sell out. CMH’s grab-bag of enterprises led the Australian Financial Review’s Chanticleer to describe it as “Spare Parts Media”, an organisation unlikely to last long as investors eye off its strategic assets.

Murdoch and Packer will be hoping this will be more successful than their last joint venture. They were both directors of the ill-fated telecommunications company One.Tel which collapsed in 2001. During the dotcom boom One.Tel attempted to create a youth-oriented image to sell their mobile phones and internet services. The company was supposed to make the country's richest sons successful in their own right. In 2000 One.Tel reported a loss of $291 million after spending over $500m million on purchasing additional Australian spectrum licenses. Yet company managers Jodee Rich and Brad Keeling gave themselves a $7 million dollar bonus. Packer defended the pair as visionaries and excellent managers. In May 2001, Packer and Murdoch underwrote a rights issue of $132 million worth of new shares. Just 12 days later, a voluntary administrator was sent in and One.Tel went bust. One can assume the pair have learned their lesson and won’t ignore their statutory duties of care and diligence a second time.

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