Cashed-up Packer seeks to block Stokes' Foxtel raid
The Age
Thursday August 27, 2009
Privatisation rumours drive shares in CMH and Crown higher. ONE thing can be said for sure about Consolidated Media Holdings' $441 million sale of its 27 per cent stake in online classifieds company Seek, and that is that Seek was one of James Packer's best investments.It cost him just $33 million in 2003, before it floated. The sale leaves Packer's media group cashed up, and that was the source of much speculation yesterday.Rumours about possible privatisation moves helped push the shares of CMH, the Crown casino group and Packer-affiliated Challenger Financial Services higher, but late in the day CMH confirmed another rumour, by announcing that it would be buying back 10 per cent of its shares.The Seek sale is unlikely to deter Kerry Stokes, who has compiled a 19.9 per cent hostile holding in CMH.As Stokes noted yesterday when he announced the Seven group's results, CMH got a good price for its Seek shareholding. And CMH still owns what Stokes really wants: 25 per cent of pay TV provider Foxtel, and 50 per cent of Premier Media, the company that supplies the Fox Sports pay channels.But the buyback complicates matters, in more ways than one.James Packer bought as many shares as he could without being required to bid for CMH last month in response to Stokes' raid, boosting his blocking stake by almost 3 per cent to just under 41 per cent.The buyback could lift him to 45.5 per cent if he does not sell any of his shares into it, as has to be considered likely. That would be close to a lockout, given that Stokes would only lift to 22 per cent if he did not sell into the buyback.But it would also be one achieved by artificial means: CMH said yesterday the buyback was value-enhancing, and an efficient use of surplus cash, but the regulators can be expected to examine it closely if it also results in Packer moving closer to majority control of the media company.THERE'S no doubt that this sharemarket rally is outpacing the economic recovery. That's its job: rather than reflecting what a company has earned, share prices reflect what a company is expected to earn.But it makes this June 30 earnings season particularly important.It sits on the cusp of the global financial crisis and what is meant to be a more normal period €” not a boom, but a time when demand and operating profits at the very least have stopped falling, and big asset write-downs are basically done with.The switch is already built into share prices, and while the profit season has been better than expected, it hasn't totally confirmed the scenario.The S&P/ASX 200 Index is trading on a multiple of almost 17 times expected earnings in the next year. That's a bit high €” correct weight over the years for this market has been between 15-16 times earnings €” and it reflects a view that the period companies are reporting on now produced a two-step disaster that will not be repeated.Companies were hit in the June year by asset write-downs, and also by weaker operating earnings as economic activity turned down.Goldman Sachs JBWere's estimate, made when about half the June results were in at the end of last week, was that the downturn had pushed corporate gross profits down by 17.4 per cent, and operating profit margins down by about 1.75 percentage points, to levels last seen in the 1990-1991 recession.The scenario that has pushed this market 41 per cent above its March 6 nadir is that the write-downs will tail off, and that operating profits will rebuild, slowly this financial year, but about 20 per cent in 2010-2011.But while the 19.4 per cent fall in reported June 30 profits to the end of Tuesday was about 3 per cent better than expected, there have been inconsistencies.Big companies including Qantas and Foster's have avoided giving guidance, saying there are simply too many uncertainties, and results of two of our retail property groups, Centro and Westfield, yesterday revealed different recovery outlooks.Westfield went into the red, posting a June-half net loss of $708 million after property write-downs of $2.9 billion. But joint-managing director Peter Lowy was quite optimistic yesterday, telling Bloomberg that values had hit the bottom, and declaring that the group would not need to tap investors for more capital.Centro, saved from collapse by a debt restructuring in January, posted a $3.54 billion loss for the June year after a deterioration in operating earnings and $2.5 billion in property write-downs.Centro CEO Glenn Rufrano said property prices in the US were still falling, and write-downs and property capitalisation rates, which rise when property values are falling, both show a trend.The value of Centro's Australian retail properties fell by 15.3 per cent in the June year, but by a less steep 5.8 per cent in the June half. The value of its US property portfolio fell by 18.2 per cent in the year, and by a sharp 14 per cent in the June half.The cap rate on Centro's Australian property rose by 110 basis points, or 1.1 percentage points, in the year, to 7.52 per cent, but by a less worrying 36 basis points in the second half.The cap rate on the US properties went up by the same amount, 109 basis points, over the year €” but by far the biggest portion, 84 points, occurred in the second half, a signal that America's property downturn has a way to go.
© 2009 The Age
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