Foxtel, Australia’s largest pay-TV operator, agreed to buy billionaire John Malone’s Austar United Communications Ltd. (AUN) for A$1.9 billion ($2 billion) in cash to expand in the nation’s rural areas.
The A$1.52-a-share bid is “appropriate,” Sydney-based Austar said in a filing today. The offer, which is 20 percent higher than yesterday’s closing price, is subject to antitrust approval
The purchase would help Foxtel, which focuses on metropolitan areas, access Austar’s viewers in smaller cities such as Ballarat and Albury to increase its audience by 46 percent. The bid is the 15th deal announced in the Australian media industry during the past 12 months, according to Bloomberg data, as the nation’s media tycoons seek to capitalize on a rebound in advertising spending.
“Tying the two together is an efficient and sensible outcome which would streamline the business operations for both,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty. in Sydney. “Austar and Foxtel have been operating in conjunction with one another for some time, with a similar offering into slightly different geographies.”
Foxtel is half owned by Telstra Corp., Australia’s largest phone carrier, with 25 percent stakes held by Rupert Murdoch’s News Corp. (NWSA) and James Packer’s Consolidated Media Holdings Ltd. (CMJ) Austar is controlled by Malone’s Liberty Global Inc. (LBTYA), which owns a 54 percent stake.
Austar shares gained 7.9 percent to A$1.365 at the 4:10 p.m. market close in Sydney. The stock has gained 21 percent since the companies first disclosed they were in talks on March 2. Telstra rose 0.3 cent to A$3 and Consolidated Media added 2.2 percent to A$2.84.
After including assumed debt, the deal is valued at A$2.6 billion and is priced at 10.6 times Austar’s earnings before interest, tax, depreciation and amortization. That compares with the 10.4 times earnings average of Australian media deals in the past 12 months, according to Bloomberg data.
A completion of the offer, which would form a TV broadcaster with 2.4 million subscribers in a nation with a population of 22.6 million, would result in the second-biggest purchase in Australia’s media industry in the past year, according to data compiled by Bloomberg.
Foxtel is being advised by UBS AG, while Austar hired Goldman Sachs & Partners Australia Pty. Credit Suisse Group AG is advising Telstra.
The agreement may be reviewed to ensure it doesn’t violate Australia’s antitrust laws, the Australian Competition and Consumer Commission said in March. Getting approval may depend on whether regulators view Foxtel as part of the whole Australian media industry or just within the pay-television industry, according to analyst Mark McDonnell.
“It’s a very rational proposal for something that has really just been a territory split,” said McDonnell, an analyst at BBY Ltd. in Sydney, who has a “buy” rating on Austar’s stock. “It’s always hard to second-guess regulators and it comes down to how they view the market.”
The surge in deals is being partly driven by the recovery in advertising, with the nation’s market likely to expand 6.5 percent this year, led by 17 percent growth in Internet spending and a 7 percent increase in TV expenditures, according to estimates in January from Morgan Stanley. Overall spending rose 10 percent in 2010 after shrinking the previous year, according to the company.
The Foxtel move comes after Packer and fellow Australian billionaires Kerry Stokes and Gina Rinehart announced media deals to capitalize on the recovery in advertising spending.
Stokes, whose Seven Group Holdings Ltd. has a 24 percent stake in Consolidated Media, led the biggest deal this year. Last month, he completed the creation of Seven West Media Ltd. in a A$2 billion deal that united the nation’s top-rated TV network and more than 25 magazines and Perth’s sole daily newspaper.
Rinehart, Australia’s richest person, has bought 10 percent of Ten Network Holdings Ltd. (TEN) Packer teamed up with Lachlan Murdoch to each buy 8.9 percent of Sydney-based Ten, the nation’s third most-watched commercial broadcaster. Fairfax Media Ltd. (FXJ), Australia’s second-largest newspaper publisher, this month announced plans to sell its radio unit.