Why James Packer jumped out of the media game and how Lachlan Murdoch dodged a bullet

It’s unlikely that James Packer shed too many tears yesterday when he officially resigned from the board of PBL Media.

It’s unlikely that James Packer shed too many tears yesterday when he officially resigned from the board of PBL Media.

While his resignation effectively ends his family’s 50-year association with the Nine Network, it appears Packer wants nothing to do with the media business.

Consolidated Media Holdings, of which Packer owns almost 40%, has written the value of its 25% stake in PBL Media to zero. Packer has also refused a request to invest another $75 million into PBL Media to help shore up the company’s ailing finances.

It’s no wonder Packer wants out of PBL Media – the company, which is backed by private equity giant CVC, is in desperate trouble.

PBL Media is struggling under the weight of $4.2 billion in debt and needs a capital injection of around $300 million to keep its syndicate of lenders happy. The interest on that giant debt load – around $450 million a year – is eating up most of PBL Media’s profit, and with advertising spending likely to slump during the economic slowdown, the repayments will only get harder to meet.

This morning there are reports PBL Media is looking for a buyer for its 49.6% share in online classifieds business carsales.com.au for around $500 million. If the company’s performance deteriorates further, more asset sales could be possible.

Packer’s refusal to put any more money into PBL Media underlines his pessimistic view of the company’s future. But the refusal is really the final act in Packer’s brilliantly-timed exit from the media sector.

In February 2007, Packer convinced CVC to pay a whopping $4.6 billion for a 50% stake in the media assets (primarily the Nine Network and the ACP publishing empire) of his family’s main company, Publishing & Broadcasting Limited. Four months later, CVC stumped up another $524.9 million for a further 25% of the media business.

And if getting $5.1 billion for these media assets wasn’t enough, Packer even managed to quarantine some of PBL’s more valuable assets from the deal, including its casino business, its 25% stake in pay TV operator Foxtel, pay TV content company Premier Media Group and a 26.7% share in online job ads company SEEK.

Packer then split PBL into two businesses – Consolidated Media Holdings (which owns the stakes PBL Media, Foxtel, Premier and SEEK) and Crown (which holds the Crown casinos in Melbourne and Macau and the Burswood casino in Perth).

As part of the deal, PBL shareholders got a special cash payment. James Packer’s take was $785 million.

Packer’s run of luck ended there. Since the start of the year, the value of Packer’s investments in Crown and Consolidated has fallen by a total of $2.2 billion, from $4.5 billion to $2.3 billion, as the companies’ shares plunged 48.2% and 50% respectively.

These share price falls don’t look impressive, but it must be remembered that the wider Australian market is down 40%. Packer’s decision to get out of the media game stands out as the sort of clever deal making that has kept the Packer family in the top bracket of Australian wealth for more than three decades.

And if Packer is quietly pleased with his sense of timing, spare a thought for his old mate Lachlan Murdoch, who probably still hasn’t stopped breathing sighs of relief after his bid to buy Consolidated Media Holdings at $4.80 a share fell though earlier this year.

Consolidated Media stock is now trading at just over $2 a share, which means Lachlan would have taken a terrible bath had the deal gone through.

Murdoch would have also had to taken on billions of dollars of debt to buy Consolidated Media, which could have crippled the company in the current environment. Talk about dodging a bullet.