Amid all the eulogising about Kerry Packer’s wonderful business savvy, a myth has been perpetuated about just how cheaply he bought back Channel Nine from Alan Bond in 1989-90.
On the night of his death, the Seven network reported that Packer sold the stations for $1 billion and bought them back for just $200 million. Given that Seven CEO David Leckie and news boss Peter Meakin were both at Nine at the time, surely they knew this was a myth not to be repeated.
Terry McCrann is the only commentator who has written over the past two weeks that Packer’s purchase price was a lot higher than is widely reported and even Malcolm Turnbull’s name was associated with the myth in The Bulletin’s tribute issue to its late proprietor when the following appeared:
In 1990, Turnbull went to Packer’s country property to lay out the deal of the century. For less than $200 million, Packer could buy back his TV empire. Packer was no gambler on this deal, and according to Turnbull he took hours to be persuaded.
The strange thing about this myth is that it was widely reported at the time that Packer’s re-entry wasn’t such a bargain basement deal. This is the opening paragraph from a SMH story on 2 December, 1989:
Mr Kerry Packer launched a long-awaited bid for his old Nine Network last night, making a paper offer to Bond Media shareholders that values the three stations at $703 million.
Then you have this from a Mark Westfield comment piece in The SMH on 12 December, 1989:
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Packer’s Consolidated Press Holdings is prepared to chip in about $85 million to make up the looming shortfall on its proposed $450 million equity raising as part of its takeover offer. Cons Press and its main bid underwriters, County NatWest and Whitlam Turnbull, have been trying since they launched the bid on 1 December to raise $300 million in equity and $150 million in five-year convertible notes in Packer’s bid vehicle, Television Corporation of Australia.
Bond Media was only producing about $60 million a year in earnings before interest and tax in 1989-90, yet Packer was valuing the stations at about 12 times the earnings in an environment of 17% interest rates. No wonder Turnbull has trouble persuading him to play ball.
Bond Media had $700 million of debt when Packer swooped, including the $200 million in preference shares owed to Packer which fell due in March 2000. Packer converted his $200 million into equity and then attempted to raise fresh equity to take out the $500 million owed to various banks, led by National Australia Bank.
But what must be remembered in the wash-up is that Packer received $800 million in cash for selling Channel Nine in Sydney and Melbourne. There was never really a cheque for $1.055 billion because $200 million was left in Bond Media as preference shares. This $200 million was indeed the key to him regaining control and eventually emerging with 51% of the new vehicle which owned the two stations he sold plus Channel Nine in Brisbane which Bondy already had. Selling 100% of two stations and then buying back 51% of three is clearly too much detail to explain.
Today, the three Nine stations are generating EBITDA of $270 million and are worth close to $2 billion. However, the Packer family is down to just 38% of PBL, so their share of that is only about $760 million.
This is a big claim, but the Packer family might have been better off if they hadn’t sold Nine to Bondy because they would still have 100% of Nine in Melbourne and Sydney and Kerry wouldn’t have gone off and blown hundreds of millions on crazy mining, property and currency plays in the aftermath of extracting that $800 million. Sure, KP famously had the one Alan Bond in his life, but he squandered most of the proceeds as Richard Walsh acknowledges in The Bulletin’s tribute issue when he revealed the empire suffered “an acute cash flow crisis” in 1990.
Sure, it has worked out very well for the Packers in the end. But don’t let anyone try and tell you it is as simple as selling something for $1 billion and buying if back for just $200 million.