For a media proprietor, James Packer is one of the least communicative public company leaders in Australia. Disowning Bob Katter’s appalling homophobic television ad during the Queensland election campaign was a rare example of a public Packer pronouncement and he only did this because Campbell Newman is vital for Crown’s planned merger with Echo Entertainment Group, which owns the Brisbane, Gold Coast and Townsville casinos. The failure to react to yesterday’s definitive statement by Terry McCrann that Consolidated Media Holdings has appointed UBS to pursue sale options for its stakes in Foxtel and Fox Sports was a classic example of the Kremlin-like Packer way. McCrann’s column appeared in about 1 million newspapers across Australia, yet Packer and all his advisers were directed to say nothing. Today’s News Ltd papers are full of detail such as meetings between UBS and News Ltd CEO Kim Williams. The Herald Sun even reported today that "News Ltd is in advanced talks with Mr Packer to buy his Foxtel stake". It was most surprising that the ASX did not force CMH to make an announcement yesterday and plainly ridiculous that the silence continued into Friday morning until the following was finally released at 9.32am:
Consolidated Media Holdings makes this announcement in response to recent speculation that CMH is considering a sale of its Foxtel interest and that preliminary and informal discussions have taken place with potentially interested parties. CMH has had very preliminary discussions concerning a possible control proposal. No control proposal or other form of offer has been made to CMH and CMH can give no assurance that a control proposal will be made. CMH is not considering a sale of its Foxtel interest. UBS has been retained to provide advice to CMH in the event that CMH is required to respond to any proposal that is made.
Why did this take so long? It is not as if the ASX wasn’t aware of the play at hand, given that its new CEO Elmer Funke Kupper used to run the rival casino business that is driving all this Packer speculation. Bizarrely, the various websites were headlining reports this afternoon with claims Packer had ruled out selling his Foxtel stake. Yes, that’s because he wants to sell the holding company, which also includes 50% of Fox Sports. If CMH tried to sell its 25% Foxtel stake, that would trigger pre-emptive rights for News Ltd and Telstra. As for the UBS appointment, I reckon it is inappropriate for Packer’s adviser to be paid by CMH, which should have its own independent adviser answering to the independent directors. So who would have leaked the UBS appointment to McCrann and why? My money is on someone at News Ltd. McCrann has been the preferred outlet for many company "announcements" over the years and the company needs to move quickly. If Ofcom does indeed declare the Murdochs unfit to control BSkyB, it will be very hard for credible regulators and governments to approve News Corp television takeovers in other parts of the world. A quick deal now would involve surfing on the regulatory momentum gained from Foxtel’s recent $2.3 billion Austar takeover. Similarly, rival bidder Kerry Stokes is vulnerable at the moment after the recent profit warning that sent Seven West’s share price and credibility tumbling. Besides, it is highly unlikely Stokes would get Packer, Murdoch and Telstra to all agree he can control Foxtel and he doesn’t have the necessary $4 billion to play with. Telstra is the biggest threat to Murdoch, especially now that it has all this surplus cash from the NBN deal. David Thodey has previously described Foxtel as Telstra’s best-ever investment, so why would he walk away? The other card to be played in this latest round of media mogul shake-downs revolves around Network Ten. I still reckon James Packer spent $300 million snapping up almost 20% of Ten two years ago because he wanted some political protection for his expanding casino operations. This is what he told the Crown AGM in 2008 when asked about Tabcorp’s casino division before it was demerged to create Echo:
"There is a real issue that has not been covered as closely as I would have thought in the press. Our licenses are fundamentally different. In the case of Crown and in the case of Burswood, there is a specific license condition in agreement between the state and Burswood, and the state and Crown, that the Government cannot change tax rates without mutual agreement. In the case of the NSW and Queensland casinos, there is specific wording that says that the Government, at its sole discretion, the Government can change tax rates. So I think they are fundamentally different licences."
In other words, Echo could be slugged by cash-strapped governments in NSW and Queensland, in much the same way that Tattersall’s and Tabcorp copped it in the neck from John Brumby over their Victorian pokies licences. Packer has the Echo board right where he wants them at the moment. The company has been destabilised by the public inquiry in Sydney and has no controlling shareholder. Brisbane-based Echo chairman John Story was the successful legal adviser to Jupiters way back when the Gold Coast casino was tendered by the Bjelke-Petersen government in the 1980s. He is also one of the oldest major company chairs, so a dignified exit into retirement is all that Packer needs to engineer. Once the Queensland and NSW governments approve Crown moving above 10% of Echo, Packer will use cash to get to 20% and then ultimately propose an all scrip merger that leaves him with more than 40%. Interestingly, if the Murdochs are declared unfit to run BSkyB, Packer might have to sever the Foxtel, Fox Sports and Network Ten relationships in order to receive regulatory clearance from various casino regulators. After suffering a big scare during the GFC, he will also need the money from these media sales in order to become the biggest casino mogul in Asia without taking on excessive debt.