More than just friends?

Consolidated Media and News Corp are already partners in two strategic and related businesses – Foxtel and the Premier Media Group that owns the Fox Sports channels. They each own 25 per cent in Foxtel (Telstra owns the other 50 per cent) while they share ownership of the very profitable Premier Media.

The freeing up of Telstra later this year from a prohibition on competing with Foxtel could see the launch of Big Pond TV, which could be the catalyst for a restructuring of the sometimes-tense Foxtel relationships. Certainly, the significance of the Foxtel-related assets to Cons Media suggests there could be a Foxtel-related motivation for Lachlan's approach to James.

There were, however, rumours late last year that Lachlan had sounded James out on buying Cons Media's 25 per cent interest in the PBL Media group, now 75 per cent-owned by the CVC private equity group.

With CVC holding pre-emptive rights over that interest and James no doubt seeing the rump of his family's old media empire as an option play – Cons Media has its own pre-emptive right to buy CVC's interest if, or rather when, the group decides to cash out its stake. It wouldn't have been easy for Lachlan to get his hands on that interest. Buying into Cons Media with James' support ought to be a more straightforward transaction. Cons Media said the latest proposal was initiated by Lachlan.

It is unclear why James, who owns just over 38 per cent of Cons Media, would be prepared to share ownership of it with Lachlan, unless Lachlan has brought some larger strategy and/or advantage to the negotiating table. It is possible that James may feel he owes Lachlan, with whom he has a strong relationship, after inviting him into the One.Tel debacle. The partnership, however, involves stakes too large for it to be built purely on sentiment.

While Lachlan no longer has any executive role within News Corp after his resignation two-and-a-half years ago, he remains a director, as well as a Murdoch. It's conceivable Lachlan and James see some common long-term interest in creating a shared vehicle for Murdoch and Packer interests in the local media.

For Lachlan, who has been managing a small portfolio of new media interests through Illyria Pty Ltd – the company he established after quitting News – buying half of Cons Media is a remarkably bold move. Even after utilising Cons Media's 27 per cent stake in Seek to provide about $500 million of the bid's funding, he will have to find about $1.4 billion of funding for his half of the proposed joint venture.

Cons Media's statement, however, referred to "Illyria and its equity partners”, although it didn't disclose who those partners might be. There are some suggestions that Lachlan has the backing of a private equity firm.

The approach could hardly be said to be opportunistic, given that even in the midst of the massive sharemarket sell-off Cons Media's shares are still trading at prices well above the sub-$3 a share level they held throughout most of last year – until the rumours of Lachlan's interest ignited them. The $4.80 a share "final price" in the indicative proposal (cash of $4.06 a share plus 0.1116 of a Seek share) looks generous in the current uncertain environment.

There is a lot of water to flow under the bridge before the deal is finalised – Illyria's approach to James and therefore the proposal made to Cons Media is conditional on due diligence, financing and negotiation of a joint venture agreement. Even then the partners would need the support of non-associated directors and shareholder approval at a scheme meeting.

Between now and then, presumably, a better understanding of Lachlan's backers and James' motivation for agreeing to enter the partnership will emerge. Otherwise, despite the apparent generosity of the proposal, the shareholders who will decide its outcome might decide there's more strategic value in Cons Media's portfolio of media investments than the market has thus far perceived.