There aren’t too many better television and communications writers than Crikey colleagues Bernard Keane and Glenn Dyer, but their criticism of James Packer’s investing acumen yesterday was unwarranted. While not without his share of foibles (Packer’s terrible investments in Las Vegas casinos at the height of the internet bubble represented a complete failure to understand prevailing global economic winds), his sale of Channel Nine to the dim-witted folk at CVC Asia Pacific netted the Packer family $2.7 billion and remains one of Australia’s best ever divestment decisions.
Dyer correctly pointed out yesterday that Packer could have bought Ten during its desperate rights issue last year, noting that James “could have in fact saved Ten last year and been a hero, and reaped all the financial and political benefits. But he was sulking about the failure of his casino plays and unhappy at the nasty media pointing it out”. That’s all true, but the money Packer could have “saved” last year was a mere fraction of the profits he reaped from selling Nine at the perfect moment. Further, it is a foolish investor who tries to “pick the bottom” of the market. One can never tell if they are picking up a bargain or catching a falling knife.
Last year, when Ten conducted its equity raisings the prospects for free-to-air television advertising did not appear especially rosy. In fact, had it not been for MasterChef’s stunning success, Ten’s share price may still very well have been in the doldrums. A wise investor waits to see a sustained improvement in future earnings capacity before purchasing a stake in a business. As Warren Buffett advises, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Last year, Ten appeared to be a fair company at a wonderful price. (Even then, CanWest sold its 50% stake in Ten for $680 million — so by waiting a year, that stake would cost Packer only an additional $150 million).
James, like Kerry, appears to be a better seller of businesses than he is a buyer (with the exception of Crown, an acquisition that was championed by James and that earned the Packer family billions and also job directory, Seek). It is often forgotten that Kerry, for all his supposed investing acumen, wasn’t even able to beat the performance of the All Ordinaries Index between 1974 (when he took control of the family empire) and his passing in December 2005.
And while James may not be a very good manager of television stations (unlike his dad) and he gave far too much power to John Alexander in his previous incarnation as a media boss, he appears to be a much better investor in them. James saved his family almost $3 billion by selling Nine in 2007, shortly before the bubble popped — that is nearly five times as much as Kerry saved when he infamously sold Nine to Alan Bond for $800 million cash and effectively “bought it back” for $250 million.
James’ Ten purchase is probably more of a punt than any influence to become a genuine mogul. The $250 million Packer splashed on his initial stake (which will almost certainly rise) represents just over 5% of his wealth — less than what most people spend on their car. However, the relatively small punt gives Packer influence at one of the nation’s largest media outlets, and exposure to free-to-air as well as subscription television through his existing Consolidated Media stake.
Dyer and Keane noted yesterday that “the responsibility [of being a media mogul] isn’t a social one, it’s private, and means sticking to the media through thick and thin, cutting your cloth to suit the times, fighting rival moguls and wannabes, trying to crush new and old media competitors, corralling governments and their policies to suit them, and protecting all your business interests”.
That may be correct, but as any good businessperson realises, preserving one’s capital is more important than “corralling governments”. Kerry knew that when he sold Nine to Alan Bond and James did when he sold PBL Media to CVC. Media assets can always be bought — capital doesn’t come as easily.