A case of perfect Packer planning

The timing of the ACCC's approval of News' takeover of ConsMedia and Packer's deal with Lend Lease for the Barangaroo development dovetail perfectly.

It is, presumably, a neat coincidence that News Corp should get an Australian Competition and Consumer Commission clearance for its proposed $1.97 billion bid for James Packer’s Consolidated Media at almost the same instant as Packer’s Crown Ltd signed an exclusive deal with Lend Lease to build a resort hotel within the Barangaroo development in Sydney.

The two deals – the sale of Packer’s controlling stake in ConsMedia and Crown’s plans for the Barangaroo site – are directly linked.

If the News Corp bid for Cons Media proceeds and is successful, Packer will get $1 billion of cash which will enable him to support a capital raising within Crown to fund its ambitions without being diluted.

Those ambitions include the option of increasing Crown’s stake in Echo Entertainment, which owns The Star casino in Sydney, in order to use its exclusive casino licence in that city to construct a high-roller facility within the Barangaroo development.

Packer said today that Crown was considering the options for incorporating a VIP gaming facility in the new hotel resort but that such a facility was necessary to underpin the economics of the development and the operation of a six star resort. To get clearance for a gaming element to the development Packer will need to convince Echo to co-operate with his vision.

As discussed yesterday (Packer reveals his towering Crown plan, August 1) after Packer announced a $568 million re-development of Crown’s Burswood complex the missing link in Crown’s domestic casino business is a Crown presence in Sydney.

By striking the deal with Lend Lease, which gives it two years of exclusivity over the site, Crown has ensured that it is in the box seat if a new casino is to be built. Echo and Malaysia’s Genting, which has built a matching stake to Packer’s 10 per cent of Echo, will now have to deal with Packer if they share his confidence in the potential of a dedicated high-end high-roller facility in Sydney.

The sale of his ConsMedia interests and their use to expand his casino interests would put a final punctuation point to James’ steady withdrawal from his family’s traditional involvement in media as he has increasingly focused on Crown’s substantial and successful interests in gaming and entertainment complexes.

The ACCC clearance for News to acquire Cons Media comes as no surprise. News already has management control of Foxtel as well as a 25 per cent stake and it also has a pre-existing 50 per cent interest in Fox Sports. Adding Cons Media’s 25 per cent Foxtel shareholding and its half of Fox Sports doesn’t have any adverse implications for competition.

News will still have to deal with Kerry Stokes’ Seven Group Holdings, which owns about 24 per cent of Cons Media and which has sought ACCC approval to bid for the rest, although the ACCC said today it was continuing to assess that proposal. Seven’s free-to-air and other media interests raise far more complicated competition policy issues.

There is a widely-held view, however, that Stokes sought that approval not because he seriously plans to bid for Cons media, which would stretch his group, but to try to gain some negotiating leverage with News. Seven would no doubt love to get a direct interest in Fox Sports or perhaps some sort of on-going alliance with Foxtel in acquiring future content, particularly sporting rights.

A 50 per cent interest in Foxtel, which is structured as a joint venture, would give News direct access to half its cash flows – more than $400 million of earnings before interest, tax, depreciation and amortisation – while Fox Sports is a highly-profitable content provider to the pay TV service.

Foxtel would be the centrepiece in the dominant Australian component of the publishing entity that News Corp plans to hive off from its far larger film and television interests elsewhere and give News Ltd’s Kim Williams a core of financial stability to work with as he radically re-makes News’ traditional print operations to prepare the News Ltd mastheads for an increasingly digital future.

News Ltd is the owner of Business Spectator and Eureka Report.

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