The son sets on Kerry's media empire, by Miriam Steffens - The Sydney Morning Herald - 28th October 2008

A short, five-paragraph statement has ended the most powerful dynasty in Australian television. In it, James Packer cuts the 52-year ties to his late father Kerry's media empire and leaves the once all-powerful Nine Network and ACP Magazines in the hands of financial engineers.

James, blooded in his father's empire from an early age, severed the final link of family control over PBL Media yesterday when he announced he and lieutenants John Alexander, Chris Anderson and Martin Dalgleish had resigned from the board of the heavily indebted venture that runs the Packer media assets.

In 1956 James's grandfather, Sir Frank, aired the country's first television broadcast and began an era of dominance in Australian television that would survive until last year when Kerry Stokes's Seven Network snatched the ratings crown. The Packer ties to ACP go back even longer. An early milestone was the 1933 launch of the Australian Women's Weekly.

A Packer aide said: "For him, it was a very emotional decision. It's a big deal breaking away from his family's tradition and not to be on the board." But the aide noted: "He walked out of there with $5.5 billion in his pocket."

It wasn't a sudden exit but one played out in stages since Kerry's death in December 2005. Rather than inherit his father's passion for media, James's interests lay elsewhere. As one former Nine executive lamented yesterday: "I don't think Kerry Packer would have allowed this situation to happen. Kerry actually liked media and James likes gambling, that's the difference."

With the ink barely dry on the Federal Government's media law changes removing barriers to foreign ownership in October 2006, James moved swiftly to hive off half of PBL Media to the private equity firm CVC Asia Pacific. He pocketed $4.6 billion in cash as he sought to pursue his ambition to build an empire of his own with casinos in Australia, Macau and the US. The second stage came last year, when he sold another 25 per cent of the business to CVC for $525 million.

Packer still owns 25 per cent in PBL Media, which can now be diluted over time. But until now, he and his executives had remained on the PBL Media board, and retained an important say in the business's direction.

For Packer, selling most of PBL Media at the top of the private equity boom might be the deal of his life, akin to his father selling Nine for $1 billion in 1987.

"James Packer did as good as his dad in this," said Roger Colman, a media analyst from CCZ Statton Equities. "He sold it to a second Alan Bond, which is the CVC people."

Selling high provided the financial windfall to push his expansion in the $343 billion global gaming market. Only this time, few expect he will buy back the media company.

The resignation leaves Packer's Consolidated Media Holdings with a half stake in Fox Sports, 25 per cent of the pay TV operator Foxtel and a 27 per cent stake in the job advertising site Seek. But for the first time, a Packer no longer calls the shots at Nine, which is struggling in the ratings and under a mountain of debt.

Private equity managers more experienced in financial engineering than boosting television ratings or magazine sales now face an uphill battle to turn around the businesses and assure their bankers they can meet their debt obligations.

The most pressing issue is rooted in the structure of Packer's private equity deal. It leaves CVC with a media company reeling under a debt load of $4.2 billion. Earning just $463 million in pre-tax earnings last year, the business struggled to pay the interest on that debt amid an advertising recession.

There are suggestions that earnings from the media assets may not be able to pay back interest payments on the debt by the end of the year.

Packer decided to pull the plug on the weekend. Analysts said it may have been made to avoid any repeat of the One.Tel disaster, when he was on the board of the collapsing telecommunications company with Lachlan Murdoch.

Packer's exit from PBL Media comes six months after a collapsed $3.2 billion buy-out of Consolidated Media Holdings with Murdoch, which Packer scuttled by refusing to budge on price. Since then, CMH shares have more than halved in value.

Given their media experience, CMH directors could see they were possibly "looking at a gradual collapse with a high-cost debt market", Mr Colman said. Resigning from PBL Media, "the directors have walked away from personal liabilities".

Not that Packer is carefree. He's fallen from the top of the Rich 200 List as share price falls in CMH and his gaming arm, Crown, eroded his wealth, last estimated at $5.2 billion in May. He has scrapped a plan to build a casino resort with the tallest tower in Las Vegas, and there are questions about Macau.

(Credit: The Sydney Morning Herald)

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