Post by Flash on Apr 9, 2008 22:35:16 GMT -5
LIFE has a habit of taking us down blind alleys or up dry gulches. Often when our hopes, aspirations or best laid plans come unstuck, we need to pick ourselves up, dust ourselves off, take a good look around and ask: What now?
So it is with the sons of our two most powerful and enduring media dynasties: James Packer and Lachlan Murdoch. Following the abandonment of their proposed privatisation of Packer’s Consolidated Media Holdings, Murdoch has egg on his face and Packer has a dodgy asset he can’t sell at his price. And judging by his world-weary words this week, Sydney’s star radio performer Alan Jones is asking the same question.
I wouldn’t be surprised if Jones quit the station he part owns, 2GB, at the end of this year, but before he does he has to find an answer to his exquisite dilemma: how to get his money out without suffering a painful loss of value.
Jones returned to the airwaves this week after being poleaxed by a virus and spending 11 days in bed, “longer than any time since I was born”. He sounded decidedly downbeat as he explained: “It was like being belted by 55 baseball bats all at the same time.”
He said he wasn’t sure the virus was yet out of his system.
Jones said nothing about hanging up his microphone, but sources close to him say he has been thinking about it. He will be 67 on Sunday and his contract with 2GB is believed to expire this year.
Jones moved from 2UE to 2GB in 2002 after he took umbrage at the fact that his then employer, John Conde, sold 2UE to the now-defunct Southern Cross Broadcasting for $90million without so much as a thank-you-very-much to the breakfast star whose efforts and ratings had helped create tens of millions of value.
Jones pocketed a sign-on fee of $4 million from 2GB owner John Singleton and was given 20 per cent of the Macquarie Radio Network, which operates 2GB and 2CH. In this way he hoped to be rewarded for his ability to pull the biggest breakfast audience in the nation’s biggest radio market through the rising value of his equity.
After listing in 2003, the network was valued as high as $120 million, although its present market capitalisation is $66 million. That implies a fall of value to Jones of more than $10 million this year.
Radio industry gossip has rumbled for months that Singleton wants to get out, and if Jones wants out too, the “what now?” question for Jones is this: If the stations are put up for sale, the first thing a prospective buyer will want is a guarantee that Jones will continue to present the breakfast program for, say, five years.
If he refused or were unable to do that, 2GB’s value would fall decisively. It was Jones who resuscitated the moribund station in 2002; without him as its No.1 ratings drawcard, albeit with an older audience, its ratings performance, its earnings and its overall value would be at great risk. Who would pay top dollar to inherit that risk?
Jones appears to be between a rock and a hard place. To hold on to the value of the equity he so ardently pursued, he has to stay chained to the desk. This is unlike his old adversary John Laws, who frequently declined to make investments in radio stations, saying: “Why own the cow when you can milk it every day?”
But perhaps Jones doesn’t care. He has made tens of millions from radio and public speaking; he has a substantial real estate portfolio; and his bloodstock breeding business turns over tens of millions a year. He won’t have to worry about where his next quid is coming from.
Murdoch’s deal with Packer to jointly privatise CMH has already had its costs. From Lachlan’s point of view, quite apart from the cost of hiring armies of advisers and accountants to perform more than a month of due diligence, there is the loss of face.
This is the second unhappy outcome for Murdoch in dealings with Packer. The first, the collapse of the junior telco One.Tel, cost their parent companies a cool billion. The CMH deal, dubbed Two.Tel by the jokers of the bourse, reinforces the perception that Murdoch is struggling to find his place in the Australian media scene.
Insiders say Lachlan’s father, Rupert Murdoch, was always unhappy with the CMH deal, not only because it failed to deliver control of any of its assets but also because it involved an association with his ferocious lifetime competitors, the Packers.
Lachlan claimed he had been “profoundly misled” about goings-on within One-Tel before its collapse. The CMH deal was seen as Packer’s make-good to his mate, but it, too, has ended in the kind of tears that must surely test any friendship.
It was Packer who changed his mind and demanded that he be allowed to sell down to 25 per cent of CMH while refusing to entertain a lower price that finally brought the deal undone.
Lachlan can now cast his eye over other media deals. He hasn’t shut the door on another tilt at CMH and Tony O’Reilly’s 40per cent of APN News and Media is reportedly on the auction block.
Packer has problems. His casino investments are burning cash at a horrendous rate, and with global credit markets tight and tightening further, he may soon become a forced seller of CMH.
His need for cash was the biggest driver in his decision to renege on the original deal to sell to go 50:50 in the CMH privatisation and to seek to lower his stake to 25 per cent and pocket an extra $500 million.
Now he has the asset but no control over any of its components, including the dog that is still the Nine Network. He wants to sell, but who would buy at Packer’s price $1 above the market? Telstra, which owns 50 per cent of Foxtel, has been mentioned, but competition issues would probably prevent this.
News Limited, which holds 25 per cent of Foxtel and owns The Australian, may be prevented by various non-compete agreements. Kerry Stokes’s Seven might be attracted to Foxtel, Fox Sports and ACP Magazines but would have to unload Nine. Fairfax might find it attractive in theory, but that would be leavened by the minority status of CPH’s assets and the difficulties involved in raising funds in the present climate.
The road ahead looks decidedly rocky.