James Packer’s PBL Media has made its first move since it was established at the start of this month with CVC Asia, offering to buy the Nine Network station in Perth from Sunraysia TV for $136 million.

Sunraysia TV, which operates STW 9 (Swan Television Western Australia), asked for a trading halt before the market opened this morning and then PBL Media revealed its hand a little later in a deal that has been speculated upon for the past two months.

PBL media will do the deal by buying the operating subsidiary, licence and assets from Sunraysia, which is controlled by the chairman, Eva Presser and associated interests. Bruce Gordon’s WIN regional Media group is a significant minority shareholder with almost 44 per cent, but has no power.

Sunraysia proposes a two stage buyback of all shares in STV using the PBL Media money. The shares were trading around $13.50 yesterday with a market capitalisation of $154 million.

Presser justified the deal by saying:

Putting Swan TV together with Nine Network will provide improved programming for our viewers, improved ratings for our advertisers and operating benefits for the business.

In today’s new media landscape, one needs the critical mass to meet the demands of a highly competitive local and national media market.

The Nine Network can provide this whereas a standalone independent can not. The sale also provides an opportunity for Sunraysia to realise value on its investment.

STW 9 has underperformed for years and Presser hasn’t been interested in selling, especially to Gordon and WIN which has made at least one recent approach.

But it does raise the question why? Nine and Sunraysia have been negotiating a new affiliate agreement without any success for months now without success. PBL and Southern Cross settled a new agreement for NWS-9 in Adelaide last year (the agreements were needed after the loss of the AFL broadcast contract by Nine).

Nine and PBL controlled the network but for some reason couldn’t get Perth to lift its game: a sign of managerial weakness. So it would seem they have decided its cheaper to spend some of the $4.5 billion raised in the CVC deal.

The company said completion of the sale under the Share Purchase Agreement is subject to a number of conditions with the key condition being that the shareholders of Sunraysia approve the sale under Chapter 11 of the ASX Listing Rules, as Swan TV is the main undertaking of Sunraysia.

The proposal will be put to shareholders at a general meeting to be convened by Sunraysia in late March/early April 2007. Sunraysia says it has agreed to a break fee of $1.3 million, which is a bit outrageous as there will not be an overbidder: PBL Media controls the Nine Network and no one else would think of trying to upset the deal because it would need the approval of PBL Media and James Packer!

Sunraysia proposes to offer to buy-back all the shares “to distribute the proceeds of the sale.” In reality that’s a takeout offer for WIN and Gordon. They would feel they are entitled to 44% of the $136 million, or around $59 million, which would give a nice profit on the holding.

But not all the $136 million will be paid straight away: $5 million of the purchase price payable will be held in a warranty escrow account until 30 September 2008 and $10 million in a tax escrow account until 30 June 2012, or an earlier date during calendar year 2007 with the agreement of PBL Media.

The purpose of the escrow accounts is to reserve, for a period, funds for any agreed claims by PBL Media for a breach by Sunraysia of warranties under the Share Purchase Agreement.

As a consequence of this delayed release of the full purchase price to Sunraysia, shareholders who accept the buy-back offer will receive payment in two or more instalments.

The first instalment will be paid shortly after the close of the buy-back and the subsequent instalments (if any) will be paid as soon as practicable following release of the escrowed funds.

The value of the follow-on instalments will depend on the balance of the escrow account.

Peter Fray

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