Seven's chief can afford the long game
The Age
Saturday September 12, 2009
THE truce between Kerry Stokes and James Packer that sees Stokes' Seven group take two seats on the board of Packer's Consolidated Media group is both a recognition of reality and an instalment in a longer game.Stokes waded into the market to take a 19.9 per cent stake in CMH because he is a media junkie, and believes James Packer is not, and despite the speculation that his raid on CMH would spark a head-to-head brawl, the relative strengths of Packer and Stokes always suggested that Stokes would need to bide his time.James Packer was under short-term pressure as he booked losses on the casino expansion in the United States and Macau he has been running through his other listed vehicle, Crown, and Stokes may have thought that presented a short-term opening to elbow his way into CMH, which has interests he has long admired: a 25 per cent interest in the Foxtel pay-TV business, and a half share of Premier Media, the company that supplies the Fox Sports pay channels.The odds always were that Packer would not retreat, however, and that was confirmed quickly when Packer used takeover creep provisions to boost his stake in the media investment company by 3 per cent to just under 41 per cent.CMH then sold its 26 per cent stake in online classifieds group Seek for $441 million, and announced its intention to launch a share buyback that will boost Packer's stake to 45 per cent if he does not participate. Stokes' holding will also rise if he does sell into the buyback, to about 22 per cent, but that still leaves the two in a stalemate.Neither can take complete control of CMH without the other agreeing to sell, and the bill for a clean-up bid would be substantial for either magnate, given that CMH has a market value of $2.1 billion.The deal they have struck recognises that, and postpones the end game rather than axing it.Stokes's Seven group will have two nominees on CMH's board, but Packer will have three, and Seven will not add to its holding in the next 12 months without obtaining permission from the CMH board.That gives both sides a year to consider the next stage, and Stokes will reckon that time is on his side.His long-term bet is that James Packer is much more interested in the casino business than the media business, and, in a financial sense, more committed.And he can afford to wait to see whether he is right: his Seven group sold half its television network to private equity group Kohlberg, Kravis Roberts for a net $3.3 billion in 2006. It has been on an investment spree since, but is still sitting on cash of close to $1 billion after buying into CMH.
© 2009 The Age
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