Media Maestros

Smart deal for Packer, Stokes, as Murdoch bids for ConsMedia

If you ever wondered how much the Packers made from winning the Super League war in the 1990s, you need look no further than today's $1.97 billion bid by News Ltd to take over Consolidated Media Holdings.

The Murdochs are essentially buying two assets -- 25% of Foxtel and 50% of Fox Sports -- which were handed over to Kerry Packer by Rupert Murdoch in 1997 to settle the battles over pay-TV and rugby league.

A bit of money changed hands at the time, but it was chickenfeed, so if you reckon the Packers have made more than $1.5 billion on their victory, you wouldn't be far wrong.

Not bad for a bit of sport, really.

Amazingly enough, Kerry was bitterly opposed to taking up his option on Foxtel, which was losing money at the time, and had to be railroaded into it in 1998 by James and his fellow directors. Realising he was going to be rolled at a board meeting for the first time in his life, he got to his feet and stormed out, but not before telling everyone: "You know what I think of this. It's fucking bullshit".

Score one to James. And score another to Rupert, in that he at least knew he had blown it. One man who was close to both tycoons says, "Giving up half of Foxtel to Packer has always pissed Rupert off. He has never got over giving so much away. Kerry took advantage of him".

Pragmatic as ever, Rupert is nevertheless shelling out close to $2 billion to get back what he gave up, and James, no doubt, will soon be walking off to spend his $1 billion net on some new casinos, perhaps by launching a full bid for Echo Entertainment, owner of Sydney's Star and the Gold Coast's Jupiter's. Packer's Crown Ltd and the Malaysian casino group Genting, now have 9.45% apiece, so they may be planning a joint approach.

Of course, all this assumes that the Australian Competition and Consumer Commission, the ACCC, and the Foreign Investment Review Board (or in essence the Treasurer) give the takeover the green light. It's worth noting that the deal is similar in concept to the Murdochs' $12 billion bid for BSkyB in the UK, which foundered when the phone-hacking scandal went nuclear. It will be interesting to see whether anyone in our government takes the view that Murdoch already has too much market power with his newspapers and must be stopped.

Communications minister Stephen Conroy will make a statement later today, but he was giving no clues when we phoned his office this morning. Given that he accused Murdoch's The Australian and Daily Telegraph last year of declaring a "jihad" against the government and running a "campaign of regime change", one might expect him to be less than 100% supportive. But the decision does not really rest with him.

Assuming the takeover does go ahead, how smart a deal is it? For Packer it looks good: it's not the $4 a share he was said to be after, or the $4.80 he and Lachlan Murdoch were trying to buy the entire company for in 2008; but at $3.50 it's a fair lick ahead of the latest share price of $3.08, and it's almost double what the price fell to at the depths of the GFC.

Definitely an eight out of 10.

It's also a coup for Kerry Stokes, who owns around 137 million shares in CMH, or roughly 25% of the company. By our reckoning, he'll be trousering a profit of between $100 and $150 million on his stake, most of which he picked up on the cheap in 2009.

So at least eight out of 10 for him too.

Strategically, it's a more interesting move. James has raved in the past about what a great business Foxtel is, so it's puzzling that he wants to sell. But he has called several of these big decisions correctly in the past, so perhaps he has it right again?

Historically, it has rarely been a good idea to buy from the Packers. But if anyone knows how to risk $2 billion and make that work, it's Rupert, who also knows better than anyone about the prospects for pay-TV. Worldwide, his $50-billion empire now relies less and less on newspapers and book publishing, and makes more than 80% of its $5 billion annual profit from cable (that's pay-TV) and movie-making.

And with cuts in his newspapers today, this deal cements that process.


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