Kim Williams' $2 billion bang
Today is a watershed moment for News Ltd as it prepares to become a powerful local television player, thanks in part to the legacy of Williams’ success in convincing the ACCC to approve Foxtel's Austar merger.
It is no coincidence that Williams, who was appointed chief executive of News Ltd last December, chose today to reveal it has proposed a $1.97 billion bid for the Packer-controlled Consolidated Media Holdings, a bid that would release about $1 billion of cash for Packer to pursue his Echo ambitions.
Williams will also announce today a major overhaul of News Ltd’s newspaper businesses, involving massive job cuts and a shift towards a more national and digitally-oriented platform as News, like Fairfax earlier this week, responds to the structural changes occurring in the media.
The 'coincidence' of the two announcements is deliberate and is a statement of News’ future intentions. The future of media is electronic and online, with print destined for eventual, and probably not-too-distant, oblivion.
Everywhere else in the world News Corp is fundamentally, and overwhelmingly, a television and film business despite its significant collection of major newspaper mastheads. Print and publishing represents a tiny fraction – less than 10 per cent – of its revenue base and an even smaller proportion of its earnings.
In Australia, however, News is predominantly a newspaper business. Indeed it dominates the newspaper sector in this country, with a market share above 70 per cent. Its exposure to television is mainly through bits: 25 per cent interest in Foxtel and its 50 per cent of Fox Sports.
ConsMedia, of course, also has a 25 per cent interest in Foxtel and the other half of Fox Sports. If Williams successfully completes an acquisition of ConsMedia News will be an equal partner with Telstra in Foxtel, with management control, will and fully own the lucrative Fox Sports business.
With Foxtel having only recently completed its own $2 billion takeover of regional pay TV business Austar – a deal executed by Williams, who was previously chief executive of Foxtel – News will instantly be a powerful player in television. The Foxtel structure is a partnership, giving it direct access to its share of Foxtel’s free cash flows.
That’s the message Williams is trying to send, one that contrasts with the Fairfax announcement earlier this week. While Fairfax is cutting brutally, and restructuring radically, simply to give it some chance of surviving in an increasingly digital world News is dramatically shifting its orientation, not just from print to digital, but from print to television and online.
ConsMedia is Packer’s last remaining meaningful interest in the media and its sale, and the release about $1 billion of cash, will inevitably be used to fund expansion of his casino interests. It is obvious that Packer is gearing up for a tilt at Echo Entertainment and wants the Cons Media cash to maintain his control of Crown, which would have to raise a lot of equity/issue a lot of scrip to acquire Echo.
With Singapore’s Genting having built a matching stake to Packer’s in Echo of just under 10 per cent, Packer’s ambitions for Echo now have a greater sense of urgency.
It is unfortunate for Packer, although not for News, that the legacy of Williams’ success in convincing the Australian Competition and Consumer Commission to (reluctantly) approve the Foxtel merger with Austar is that it effectively sidelined the keenest buyer of ConsMedia’s Foxtel interests.
Telstra was very keen to increase its Foxtel interests but the ACCC, in approving the Austar deal, made it very clear that it would take a dim view of Telstra increasing its influence over the business because of the implications for the telecommunications market. Telstra isn’t prepared to challenge the ACCC head-on.
That left News Corp as the only realistic deep-pocketed buyer, which has enabled Williams to put a finely-priced proposal on the table.
At the foreshadowed $3.50 a share level, an offer would be only about 14 per cent above the pre-announcement price, although it is a far more respectable – but not outlandish – 30 per cent premium over the levels the shares were trading before there was a run-up in price as speculation that Packer was a seller mounted.
Had Telstra been free to compete for ConsMedia, Packer could have expected something materially higher for such strategic and valuable assets. Packer is, however, a pragmatist and the sale – and despite the conditionality of the proposal it is evident there has been a meeting of minds in principle – will serve his purposes and finance his ambitions for his core asset, his near-50 per cent stake in Crown.
That doesn’t mean Telstra has been completely sidelined. If Foxtel is a 50:50 joint venture it is possible in the emerging national broadband network environment, where Telstra will progressively withdraw from fixed-line telecommunications, that Foxtel could become a significant player in telecommunications if Telstra allows it.
Elsewhere in the world the triple-play of broadband, telephony and television is a powerful bundled proposition.
Given that News would have a bargaining chip – Telstra has long coveted an interest in the highly profitable Fox Sports – it is not inconceivable that Williams and Telstra’s David Thodey, both very pragmatic people, might be able to negotiate a ‘win-win’ outcome by releasing Foxtel from the shackles originally imposed by Telstra to protect its telecommunications interests.