Billionaire James Packer has moved to sever his family's long association with the media sector by agreeing to sell his interest in Australia's biggest pay-television company to Rupert Murdoch's News Corp. for $2-billion (Australian).
Mr. Packer said he would support News Corp.'s proposed offer for Consolidated Media Holdings, which owns 25 per cent of Foxtel, Australia's biggest pay-TV company, in the absence of a superior bid.
The all-cash deal, which is subject to regulatory approvals, will strengthen News Corp.'s grip on the Australian pay TV market by doubling its holding in Foxtel and delivering full control of Fox Sports Australia, which owns the broadcast rights for Australian rules football.
Mr. Packer is the majority shareholder in CMH with 50 per cent while billionaire Kerry Stokes' Seven Group Holdings has a 24 per cent stake.
CMH is the last media asset Mr. Packer inherited from his father Kerry Packer and a sale would effectively end the Packer family's interest in the Australian media sector. The rest of the family's TV and publishing empire - including Nine Entertainment, which was acquired by private equity group CVC Capital Partners for $4.5-billion just before financial crisis - has been sold, with Mr. Packer retaining a personal 10 per cent holding in broadcaster Ten Network.
Mr. Packer has reinvested the proceeds into his gaming businesses, which include Crown Ltd., operator of casinos in Melbourne and Perth, and Melco Crown Entertainment, a venture with Hong Kong businessman Lawrence Ho that owns one of the six highly sought-after licenses to develop and run casinos in Macau.
News Corp. is keen to expand in pay-TV assets, and Chase Carey, chief operating officer, has made clear the company is looking at businesses where it has only a partial stake to see if it can gain full control or whether it should sell its investment.
The bid for CMH, pitched at $3.50 a share, a 14 per cent premium to Tuesday's closing price and which analysts described as well timed, comes as Mr. Packer looks to reach an agreement with Echo Entertainment, a rival Australian gaming group valued at almost $3-billion.
He wants to use Echo's exclusive casino license for New South Wales to build a $1-billion six-star hotel and casino in Sydney to attract high-rollers from Asia - in particular, China.
But Mr. Packer faces a potential challenge from cash-rich Malaysian gaming group Genting, which has amassed a 10 per cent holding in Echo, matching Mr. Packer's stake. Analysts believe Genting could be set to make a takeover offer, which Mr. Packer would struggle to match.
"The fact Mr. Packer is a seller of CMH at $3.50, when previously newspaper articles suggested he wanted $4, suggests he wants cash and he wants cash quickly," says Derek Francis at investment bank Moelis & Co. "Why? So if Genting bids for Echo, Packer has the ability to counterbid."
Mr Packer is trying to position himself to tap into what is fast becoming Australia's most valuable source of tourists: China. In the past year the number of visitors from China has risen 17 per cent, according to the Australian Bureau for Statistics. Analysts expect the number of Chinese tourists to exceed 600,000 this year, up from just 156,000 a decade ago.
"The strategic attraction of Echo is it provides a set of attractive monopoly casinos for high roller Asia-based tourists in Sydney and Queensland", says Mr Francis. "Whoever buys Echo, Genting or Crown, gets a positive network effect from adding to its casino network, whist also weakening its competitor."
Genting, which runs casinos in Malaysia, South Korea, Australian and Singapore, is sitting on a significant cash pile, having raised $2.5-billion via bond issues earlier this year.
Analysts say the company will face pressure to deploy that cash relatively soon. But apart from Echo, which recently revised earnings guidance and launched a $450-million rights issue to strengthen its balance sheet, there are no obvious casino acquisitions. Other "frontier" countries with gaming potential, like India and Japan, have yet to licence foreign operators.
Genting has built its Asian casino empire by developing greenfield sites such as the highly profitable Resorts World Sentosa in Singapore so an acquisition of an existing business would be unusual. But it does have a huge database of customers that could be deployed to lure more Asian gamblers to Australia.
David Green, principal of Newpage Consulting in Macau, says there is no sign Genting and Crown are working together to carve up Echo, which also owns casinos in Queensland.
But it would make sense for Crown, if it bids for Echo, to sell Echo's Queensland properties to Genting. Crown only wants the Sydney licence, Mr Green says, but Genting may want a foothold in Australia.
"Genting is a regional operator with experience operating smaller properties, which Crown doesn't have. Some of the Queensland properties are small, and wouldn't appeal to Crown," he says.
Analysts say they did not expect News Corp's offer to encounter any regulatory issues but said it could face opposition from Mr. Stokes, who might hold out for more than $3.50 a share.
Shares in CMH rose 9.7 per cent to $3.38 on Wednesday.