Stokes, Williams and the Foxtel face-off

Nearly a decade and a half ago Kerry Stokes did what few people have ever done and exited a deal with the legendary US investor Kirk Kerkorian on terms that were so favourable in the circumstances that the market was shocked. Kerkorian is known to have said that Stokes was almost unique in emerging unscathed from a negotiation with him.

That was in 1998 when Stokes, sitting on paper losses of almost $300 million on an investment alongside Kerkorian in the famed Hollywood studio MGM, extricated his investment – which the market had notionally written down to zero – without loss and struck a deal that gave him access to MGM's library and studio output.

So, he can do a deal. But then, so can Kim Williams, former Foxtel chief and now chief executive of News Ltd.

Williams successfully oversaw the tortuous and delicate negotiations with Optus and the Australian Competition and Consumer Commission that saw the effective merger of the Foxtel and Optus pay television businesses a decade ago, steered the digitisation of the Foxtel platform through another regulatory maze, played key roles in a number of the big broadcast rights deals and ended his career at Foxtel with another sensitive transaction, the merger with Austar.

The negotiating skills of Stokes and Williams may be about to be tested again.

Today News followed through on its foreshadowed $2 billion bid for James Packer's Consolidated Media, which owns 25 per cent of Foxtel and 50 per cent of Fox Sports. News already owns 25 per cent of Foxtel and the other half of Fox Sports.

With Packer, who owns just over 50 per cent of ConsMedia supporting the bid, which has already received an ACCC clearance, it would normally be smooth sailing for News. Stokes, however, owns 25.3 per cent of ConsMedia and with the transaction to be effected via a scheme of arrangement has a single-handed ability to veto the deal.

Stokes has sought ACCC approval for a bid on ConsMedia of his own, with the outcome of that application to be known next week.

Stokes, given the breadth of his existing media interests – particularly the Seven television network – may not find it as straightforward to get past the ACCC obstacle as News. It would appear, however, that no one actually expects Stokes to counter-bid, given the scale of the sums involved, and that the approach to the ACCC was more about exploring his options, and perhaps rattling some sabres to create some pressure on News.

It would, however, be out of character for Stokes to simply accept the News bid, collect his $500 million or so, and retire quietly to the sidelines. His ConsMedia shareholding represents leverage that could be used to prise something out of News, whether it is some form of future alliance for acquisitions of sporting rights or a slice of Fox Sports.

Both Williams and Stokes have demonstrated in the past that they are tough but pragmatic.

Having launched the bid for ConsMedia almost as soon as he became chief executive of News, and conscious that the Foxtel interests will be the centrepiece of the publishing element of News Corp's planned demerger of its entertainment and publishing businesses, Williams won't want it derailed by Stokes.

Stokes, presumably, wouldn't want to make enemies, not just of News, but of James Packer with whom he has developed a good relationship (Packer today referred to Stokes, his son Ryan and his right-hand man Peter Gammell as "great friends") after a somewhat tense start.

Packer badly wants to extract his $1 billion from ConsMedia to fund his stalking of Echo Entertainment and his vision of a Sydney high-roller facility to add to his existing casino interests. Stokes also does have that $500 million locked up within ConsMedia, which could be handy during a testing time for media businesses.

Thus the framework for a discussion that clears the path for a successful News acquisition of ConsMedia is there and there are practised and skilled negotiators in place. With the clock now ticking on the bid and the scheme meeting scheduled for October 31 the negotiations can now start, if they haven't already.

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