It was supposed to be one of Australia’s more glamorous corporate deals – Lachlan Murdoch and Australian gaming magnate James Packer, scions of the most powerful Australian media empires, joined forces in late January, agreeing an A$3.3bn ($3.1bn) deal to take Packer’s publishing company, Consolidated Media Holdings, private.
Now it is teetering, after Murdoch’s US private equity backers pulled out of the deal, according to terse but densely worded statements on Thursday from both CMH and Lachlan’s company, Illyria.
A key reason, according to both sides, is that Murdoch’s financial backers, San Francisco-based private equity firm, SPO Partners, decided to withdraw – the CMH statement said “primarily due to changes in investment conditions specific to SPO and not the consortium’s assessment of the value and prospects of CMH’s investments”.
The Sydney Morning Herald reported on its website that SPO reconsidered the deal in light of the recent appreciation of the Australian dollar which “would have made the acquisition more expensive for them”. The current debt turmoil also makes raising the required funds harder.
However we can’t help noting that the decision came the week after SPO representatives flew to Sydney on a due diligence mission.
Murdoch’s big comeback into mainstream media dealmaking now hinges on finding other backers. The board of CMH was meeting Thursday afternoon to hear whether the deal was dead, or whether Murdoch and his company Illyria could tap other sources of funding, the Herald noted.
The rhetoric from Murdoch’s camp, suggested he was trying to save the deal. Illyria’s due diligence “has been progressing well”, the company said in its Thursday statement, and “Illyria remains enthusiastic about the indicative proposal [to invest in CMH]“. The company is now in discussions to replace SPO’s equity commitment from “within its existing investor group and third parties”, and has received “strong preliminary indications” of willingness to replace SPO’s funding commitment to the Illyria joint venture entity, it added.
The Herald cites industry sources saying Murdoch asked CMH’s board to extend an initial four-week due diligence window by at least 2 weeks.
As part of the deal, reports Bloomberg, Packer, already owner of a 38 per cent stake in CMH through his private company, was to increase his holding to 50 per cent; Illyria was to own the remainder.
The offer for CMH, which can’t be raised, includes A$4.06 in cash and 0.1116 of a share in Seek, Australia’s largest internet jobs site, for each CMH share. Buying into CMH, which has stakes in Foxtel, Australia’s largest pay TV operator, would return Lachlan Murdoch to a media executive role for the first time since he quit News and moved his family to Australia in 2005, adds Bloomberg.
CMH shares were placed in a trading halt Thursday morning, with an announcement expected late Thursday or Friday morning.
Of course, there is still a chance the deal will get done, says Lex.
As it stands, the acquisition is predicated on relatively modest gearing, with a 50 per cent-plus slug of equity. Lachlan may yet be able to persuade a new backer to come on board. He and the junior Mr Packer lost credibility over their last collaboration, One.tel, which collapsed in 2001, suggesting some of the fathers’ formidable talents bypassed the sons.
Mr Packer has since redeemed himself with a flurry of astute moves, including the carve-up of his father’s media and casino empire. The current deal should have been the crowning one — effectively, allowing him to buy back assets he sold at the top of the cycle. Given how much is riding on the deal, it is fair to assume Mr Murdoch will do his damnedest to find a substitute backer.