Stokes escalates media shake-up ::

Author: Damon Kitney and Neil Shoebridge
Date: 18/10/2006
Words: 1080
Source: AFR
Publication: The Financial Review
Section: News
Page: 1

Kerry Stokes has joined the shake-up of Australia's media sector, grabbing a strategic stake in West Australian Newspapers, as James Packer's Publishing & Broadcasting Ltd settled a deal to sell half its media assets for $4.5 billion.

Stockbroker Citigroup approached WAN shareholders last night on behalf of Seven Network, seeking up to 14.9 per cent of the publisher of The West Australian at about $11 a share.

The move by Seven came as private equity firm CVC emerged as PBL's partner in a new media company to house Nine Network, ACP Magazines and its collection of investments in new media companies, including carsales.com.au and internet portal ninemsn.

As part of a radical restructuring of PBL's media and gaming interests to be announced today, PBL is expected to receive $4.5 billion in cash from CVC after it outbid rival offers by American private equity funds Newbridge Capital and Kohlberg Kravis Roberts to take a 50 per cent interest in the new media company.

The new company will have a separate board and will be run by ACP Magazines chief executive Ian Law, while PBL chief executive John Alexander will be executive chairman. Mr Alexander will also retain his position as CEO of PBL.

Mr Packer's gaming interests, including the Crown and Burswood casinos in Australia and its joint venture in Asia with Lawrence Ho's Melco International, will be run by current PBL gaming chief executive Rowen Craigie and will remain a separate listed company.

PBL's interests in Foxtel, Fox Sports and online job recruitment site Seek will also remain in that listed company.

Stokes's move on WAN potentially takes out of play one of the media groups considered a target for the likes of John Fairfax Holdings, Rural Press or APN News & Media. All three have looked at WAN previously, with Fairfax holding serious talks in 2004.

Seven would be unable to make a full bid for WAN until the cross-media rules are formally changed allowing the group to own a newspaper publisher in addition to its TV station in Perth.

Seven has paid top dollar for its stake in WAN, after the newspaper group's shares jumped 12 per cent since last Tuesday when the government settled its media plan.

Meanwhile, PBL put its shares in a trading halt before the market opened yesterday after The Australian Financial Review reported details of the deal. On Monday, the shares hit a record $20.08 before closing at $19.85.

The PBL deal is said to be extremely tax effective, and there is speculation the group will use the funds to chase acquisitions in the media and gaming sector. Mooted targets include John Fairfax Holdings, publisher of The Australian Financial Review, and gaming giant Tabcorp.

However, some analysts believe that PBL will use the money to bolster the Asian gaming venture with the Hong Kong Stock Exchange-listed Melco after their proposed listing of a strategic stake in the venture on the Nasdaq was blocked by Hong Kong regulators.

PBL also proposes to build a $US4 billion casino complex in Singapore if it is successful in bidding with Las Vegas gaming-industry pioneer Mark Advent for the second licence being issued by the Singapore government.

However, the speculation that PBL and its new private equity partners would chase acquisitions was not reflected on the stockmarket yesterday.

Media stocks turned in a mixed performance, with WAN, John Fairfax Holdings, Seven Network and Macquarie Media Group rising and Ten Network - which releases its 2005-06 results today - and Southern Cross Broadcasting declining. The share prices of Austereo Group and Rural Press were flat.

The private equity funds appear to be paying top dollar for PBL's media assets.

PBL has previously valued Nine at $2 billion and ACP at $2.7 billion, with a combined valuation of $1.5 billion for its shareholdings in Foxtel and Premier Media Group, $400 million for its 50 per cent share of the internet business ninemsn, $300 million for its Seek stake, $100 million for its share of carsales.com.au and a combined $500 million for Ticketek and its shares in the cinema chain Hoyts and the American movie and TV program producer New Regency.

Yesterday, Macquarie Research Equities analyst Alex Pollak valued Nine at $2.48 billion and ACP at $3.4 billion (he did not run any valuations on PBL's internet and pay TV investments).

At UBS, whose investment banking arm is advising PBL, media analyst Nola Hodgson valued Nine at $2.47 billion, ACP at $2.78 billion, PBL's 27.2 per cent stake in Seek at $379 million, its 25 per cent share of Foxtel at $800 million and its 50 per cent share of the pay TV channel producer Premier Media Group at $596 million.

Analysts and investors praised Mr Packer's move to sell part of PBL's media interests near the top of the market for media stocks.

"His father sold Nine for $1 billion when it was leader of the pack," Clime Capital chairman Roger Montgomery said. "Now James is selling it and a few other things for four times as much and retaining half. He won't have to run it and if someone else works hard and smart and it goes well, he gets the upside.

"If it goes badly, he probably has first right of refusal to buy it back and pocket $2 billion. Brilliant."

A deal with WAN would also allow Mr Stokes to dominate the West Australian media market, given his ownership of Channel Seven in Perth.

Seven views the stake as as a strategic holding, giving it a key position as companies jostle for position as the media sector's ownership restrictions are eased.

Mr Stokes's move will further fuel the rivalry with the Packer family following the death last year of Kerry Packer, and after Mr Stokes made controversial claims about James Packer in Seven's landmark legal case against PBL and its other rivals in the media industry.

A vote in the House of Representatives is expected today following the passage of the media bills through the Senate last week, completing parliamentary approval for the federal government's reforms, which allow media companies to own two out of three mediums - newspapers, television or radio - in the same market.

The government has yet to announce when it will end the existing ownership limits, with the legislation giving the minister the flexibility to name any date in calendar 2008.

Communications Minister Helen Coonan said yesterday: "It is not a matter for the government to dictate how a media company might conduct its affairs.

"The media reform legislation has not yet passed the house so it is pre-emptive to link any planned movement by media companies to legislation that is yet to be enacted."

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