Trust the (News Corp-owned) Australian newspaper to scoop the world with its report on Monday that Lachlan Murdoch and Australian gaming magnate James Packer will join forces in an A$3.3bn deal to take Packer’s publishing company, Consolidated Media Holdings, private.
For Lachlan, 36, the deal is being widely seen as a big comeback into power media circles and meaningful deal-making. He resigned as an executive from News Corp in 2005 and high-tailed it Down Under to launch his own private investment fund. Since then, he has kept a low profile, dabbling in fairly unremarkable investments in media-related companies through his company Illyria (named, according to the FT’s People column, following a sailing holiday off Croatia, part of ancient Illyria). All the while, speculation grew about strains in the father-son relationship – and the world saw the inexorable rise of younger brother, James.
Interestingly, Lachlan’s so-called non-compete agreement with News Corp ended recently, two years after Lachlan left his job at News Corp HQ in New York, although he still sits on the News Corp board. So it seemed fitting to mark that with an eye-catching deal in cahoots with James Packer, son of Kerry and one of Australia’s richest men.
We know Rupert’s flagship newspaper in Australia has impeccable sources – and it’s just not worth any editor’s life to run a speculative report on anything to do with a Murdoch, any Murdoch.
So consider the information reasonably solid, although The Australian updated the value of the deal on its website Monday, from A$2bn ($1.75bn) to A$3.3bn. The deal will see Murdoch and Packer each take a 50% stake in a joint venture vehicle to run the company. Consolidated was formed from the split of Packer’s former gaming and media conglomerate Publishing & Broadcasting.
According to The Australia, Lachlan has raised the capital to fund the deal outside News Corp. The new joint venture will include CMH’s 25 per cent stakes in Foxtel and PBL Media, a 50 per cent stake in Fox Sports and 27 per cent of online recruitment firm Seek. PBL Media owns the Packer family’s one-time flagship Nine Network and ACP Magazines, as well as stakes in online ventures such as ninemsn and carsales.co
The offer amounts to roughly A$4.80 per share, comprising A$4.08 per share and a variable cash amount equal to the average price of shares in the online job search operator Seek, in which CMH has a large stake.
Private equity group CVC acquired 75 per cent of PBL Media last year as Packer sold down his media interests to focus on his gambling business.
Some may remember that Messrs Murdoch and Packer, junior, first went into business together through the ill-fated One.Tel venture, which collapsed in 2001 after losing $1bn.
For Packer, the deal “marks yet another step away from the media sector, and from public scrutiny”, said The Australian, noting that his private and listed vehicles have been steadily shifting their emphasis towards the gaming and financial services industries through investments such as Crown and Melco.
The latest deal will be put to CMH shareholders later this year as part of a scheme of arrangement. The deal will hinge on whether CMH shareholders consider the offer adequate.
But Stephen Mayne, the Australian blogger, commentator and small News Corp shareholder – who has had some well-publicised run-ins with Lachlan’s father at News Corp AGMS – has a lot to say about the matter in his new newsletter, The Mayne Report.
The Packer and Murdoch families are both worth A$7-8bn – but this is the biggest deal they’ve ever done together.
The Australian claims that Lachlan is financing his portion of the transaction, A$1.3bn, independently of News Corp, which raises a number of interesting questions, notes Mayne.
Is James Packer helping out with the finance as part of a final squaring off deal after the One-tel debacle, which cost News Corp A$500m and triggered Murdoch family calls for some compensation given everyone relied on James Packer’s strong backing of Jodee Rich [One-tel co-founder]. Remember Lachlan’s famous evidence about James Packer crying in his kitchen and repeatedly apologising.
A more likely scenario is that the Murdoch family – not News Corp – has come to the party as was speculated in this piece on Crikey [Mayne's previous newsletter, for which he still writes] on December 10 last year. There has still been no explanation why the Murdoch family sold US$354m worth of non-voting shares on November 15. I reckon the cash is going into this deal, which is designed to put Lachlan Murdoch back into the News Corp succession equation.
It is as simple as that, according to Mayne, who doesn’t lack for well-informed sources within News Corp.
Lachlan fell out with News Corp’s American executives in 2005 and didn’t like the office politics, hence his resignation and return to Australia where he lives with his wife, super-model Sarah Murdoch, and their two children at Bronte.
This new structure accommodates Lachlan’s desire to live in Australia whilst getting him back into the fold. Rupert and his hard-running team in New York are in charge of North America, James Murdoch has a clear paddock to run Europe and Asia and now Lachlan is being given some Australian media assets to play with.
The big question, in Mayne’s view, is how the relationship between a privatised CMH and News Corp’s Australian operations would work.
Do they work together around the Foxtel board table and gang up on Telstra? Does Seek start working with News Ltd’s struggling online classified businesses because Lachlan Murdoch will soon personally emerge with a 13.5% stake?
Given that News Corp already controls 65% of Australia’s newspapers, 25% of Foxtel, 50% of realestate.com.au and various magazines, the idea that one of its directors and a son of its founder could suddenly invest $1.3 billion into even more Australian media assets is troubling, to say the least.
Regulators, primarily the ACCC anti-trust watchdog, will have to examine this deal, says Mayne. “Surely, Lachlan Murdoch would have to quit the News Corp board, just as his brother is coming on after leaving BSkyB. James Murdoch quit the News Corp board when he first took up the post at BSkyB, although his father argued against this at the time.”
One final financing question from Mayne, who notes the four adult Murdoch children were all together in Sydney over the new year – so it is not unreasonable to ask, he says, “whether James, Elisabeth or Prudence are backing Lachlan, using some of the US$100m of non-voting stock they were each gifted last year as part of the deal that allowed Rupert to give his two daughters to [wife] Wendi Deng a bigger slice of the inheritance cake.”