News Corp. (NWSA:US)’s A$1.94 billion ($2 billion) offer for pay-television company Consolidated Media Holdings Ltd. (CMJ) gained Kerry Stokes’s support after the billionaire’s Seven Group Holdings Ltd. was blocked from bidding.
Seven, which owns about 25 percent of Consolidated, “intends to vote in favor” of News Corp. (NWS:US)’s bid, the company said in a regulatory statement today. That gives the offer support from about 75 percent of shareholders with billionaire James Packer, holding a 50 percent stake, already saying he supports News Corp. (NWS)’s A$3.45-a-share proposal.
Final approval of the deal at a meeting scheduled for Oct. 31 will unlock about A$1.5 billion in cash for Stokes and Packer and allow Rupert Murdoch’s News Corp. to double its stake in Australia’s biggest pay-TV company Foxtel to 50 percent. The deal will also give News Corp. full ownership of Fox Sports Australia, which broadcasts subscription sports events.
Stokes “may use those proceeds to make a full takeover offer for Seven West” Media Ltd., Mark McDonnell, an analyst at BBY Ltd., said by phone from Sydney, in reference to the television and newspaper company in which Seven Group (SVW) already has a 33 percent stake. “It’s become very cheap.”
He could also use the funds to buy the Sydney Morning Herald and Melbourne’s Age newspapers from Fairfax Media Ltd. (FXJ), and eventually take control of regional broadcaster Prime Media Group Ltd. (PRT), McDonnell said. A Seven West bid is still the most likely option, he said.
Consolidated Media shares rose 1.2 percent to A$3.42 at the close in Sydney while Seven Group jumped 3.6 percent, the most in a month, to A$7.28. Seven West climbed 2.4 percent to A$1.29 as the benchmark S&P/ASX 200 index declined 0.2 percent.
News Corp.’s takeover offer will also release about A$970 million to Packer that could be used to help his casino company Crown Ltd. (CWN) lift its stake in rival operator Echo Entertainment Group Ltd. (EGP)
Crown has applied for permission to buy a further 15 percent of Echo, worth about A$500 million at current prices. Packer didn’t immediately respond to an e-mail seeking comment.
Seven Group had asked Australia’s antitrust regulator for a ruling on whether it would be allowed to take over Consolidated Media, without initiating a formal bid. It said it would vote in favor of News Corp.’s bid immediately after that option was blocked by the regulator.
Such a deal would “result in a substantial lessening of competition” in the free-to-air television market, the Australian Competition and Consumer Commission said in a statement today. Seven Group controls Australia’s largest free- to-air television channel through its stake in Seven West.
“There’s actually limited scope for further media acquisitions in Australia and the ACCC decision is further confirmation of that,” McDonnell said.
In a preliminary finding Sept. 13, the antitrust regulator said a takeover of Consolidated by Seven Group would give Stokes undue influence over Australia’s market for sports rights and access to confidential information from rivals.
The commission said Aug. 2 that it had no objections to News Corp.’s offer. Unlike Seven, News Corp. doesn’t control a free-to-air broadcaster in Australia.
Consolidated and News Corp. each own 25 percent of Foxtel while Telstra Corp. (TLS), Australia’s biggest phone company, holds the rest.
Stokes may instead decide to pay down debt and invest further in Seven Group’s equipment services business, said Anthony Passe de Silva, an analyst with JPMorgan Chase & Co. in Sydney.
“There are plenty of growth opportunities within the core industrial services business,” he said, citing dealership rights in China for Caterpillar Inc.’s Bucyrus mining equipment business and a new service center in Australia’s Pilbara iron ore region. “This gives them a bit more breathing room.”
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