According to the Australian Financial Review this morning, Kerry Stokes and his Seven Network have snuck up on James Packer by purchasing a 4.82% stake in Consolidated Media Holdings, the media rump of the Packer media empire.

The stake, which is less that the 5% amount required for Seven to disclose its holding, is understood to have been acquired over multiple purchases in recent months.

Seeing Seven is now in the “blackout” leading up to the announcement of its 2008 full year results next month, it raises the question of where the information came from and why.

It would have been easier to allow the stake to emerge once the 5% limit had been triggered. But Stokes has a history of positioning himself or Seven in opponents share registers under the 5% limit and sitting there — such as Austar last year, Fairfax the year before and West Australian newspapers (where he ended up disclosing).

The news of the Seven shareholding saw Cons Media shares jump from Thursday’s close of $3.16 to a high of $3.31, before they retreated with the rest of the market to be down to $3.13 at 11am. Seven shares rose 10 cents to $8.20.

There is nothing to stop him acquiring more shares or launching a bid for Cons Media, should he want to. Stokes wouldn’t get full control: James Packer has to keep at least 25% of Cons Media and Cons Media has to keep at least 25% of PBL Media until September next year, otherwise the debt that CVC took on to buy 75% is repayable, with much of that effectively coming from Packer.

But if Stokes could get over 51% of Cons Media, it would give him a seat on the boards of Foxtel and Fox Sports, much to the annoyance of News Ltd and Telstra.

News Ltd controls the 50% of Fox Sports and the 25% of Foxtel owned by Cons Media through pre-emptive rights. But News waved through Packer’s restructure and the transferring of those holdings into Cons Media, so Stokes would argue that control of Cons Media had changed hands if he got to 50.1% and that control of the Foxtel and Fox Sports stakes still resided with the acquiring company called Sky Cable Pty Ltd.

But News would very likely dispute that and probably attempt to buy back the stakes to frustrate Stokes. News could even be forced to launch some sort of bid with Packer’s support to frustrate Stokes.

There is still considerable enmity between Stokes, Packer, News Ltd, news Corp, Fox Sports, Telstra and Foxtel over the C7 case. Seven’s appeal in that case comes up later this year in the Federal Court.

Stokes has timed his approach well: Packer has done over $2.5 billion in stockmarket value on Cons Media, Crown, Challenger and his Ellerston funds management business, while stakes that Crown holds in gaming companies overseas have declined sharply in value, such as Melco Crown in Macau.

Murdoch’s share price has been hammered by investors who distrust highly leveraged companies, as News Corp is after paying $6 billion for the Wall Street Journal and other businesses. That was clearly 20 to 30% too much, based on what has happened to US newspaper stocks in the past six months.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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