Rupert Murdoch’s News Corp. (NWS) offered A$2 billion ($2 billion) to double its stake in Australia’s biggest pay-television network and will cut newspaper jobs as it shifts to more profitable broadcasting.
The nation’s largest newspaper publisher said in a statement it’s seeking to buy Consolidated Media Holdings Ltd. to boost its ownership of Foxtel to 50 percent. News Corp.’s Australian newspaper unit plans to cut an unspecified number of jobs, slash more than 70 percent of its divisions and expand its online business, two days after rival Fairfax Media Ltd. announced it would eliminate 1,900 jobs.
Murdoch, who started his global empire with a single Australian newspaper, is following a path already adopted in the U.K. and U.S., where pay-TV assets have outgrown News Corp. (NWSA)’s newspaper divisions. Billionaire James Packer, who owns 50 percent (CMJ) of Consolidated Media, backed the bid as he seeks cash to expand his casino business and exit the last media assets he inherited when his father Kerry died in 2005.
“There’s no doubt that print is in structural decline,” said Prasad Patkar, who helps oversee the equivalent of $1 billion at Platypus Asset Management Pty in Sydney. “The days of free content are numbered so if these companies are able to gain traction in monetizing digital content, then why would you be in the print business?”
News Corp. is offering A$3.50 a share in cash for Consolidated Media, 14 percent more than yesterday’s closing price.
A deal is subject to approval from regulators and the boards of both companies, Sydney-based Consolidated Media said in a statement today.
The Australian Competition & Consumer Commission is reviewing the offer, the regulator said on its website. The closing date for submissions is July 11 and the ACCC may deliver its findings by August 2.
Consolidated Media shares surged 9.7 percent to A$3.38 at the close of trading in Sydney, the biggest gain in almost three years. The benchmark S&P/ASX 200 index rose 0.2 percent. News Corp.’s Australian-listed shares rose 0.6 percent to A$20.15.
The deal would also give Murdoch full ownership of the Fox Sports business in Australia with broadcast rights to the most popular games of Australian Football League and National Rugby League.
“Foxtel is going to dominate sporting coverage in Australia within 10 years, and that’s where News sees the goal,” said Peter Warnes, Sydney-based head of equities at Morningstar Inc. (MORN)
Consolidated Media and News each own 25 percent of Foxtel, while Telstra Corp., the nation’s biggest phone company, holds the remaining 50 percent stake.
News can fund the offer with cash as it has $6 billion of capacity under the $10 billion it authorized to spend on share buybacks, according to Justin Diddams, an analyst at Citigroup Inc. in Sydney.
“This deal is consistent with management focus on acquiring minorities in content focused assets,” Diddams said in a report to clients. “We believe a competing offer for Consolidated Media, above the A$3.50 offer price, is unlikely given the ownership structure.”
News Corp. will have exclusive access to Consolidated Media financial data and the target gave no assurance that the proposal, or any transaction, would proceed.
Packer, who owns 48 percent of casino owner Crown Ltd. (CWN), may get about A$1 billion in cash from a sale to News. The billionaire is currently seeking regulatory permission to increase his 10 percent stake in Echo Entertainment Group Ltd. (EGP), operator of Sydney’s only casino.
Since taking control of the media and gaming empire Packer inherited, he has sold the Nine Entertainment Co. television and magazine business to buyout firms and split his media and casino assets. He still holds a 6.9 percent stake in Ten Network Holdings Ltd. (TEN), Australia’s third-ranked television broadcaster, according to data compiled by Bloomberg.
News Ltd. Chief Executive Officer Kim Williams plans to cut the number of divisions in Australia to five from 19 and operate single newsrooms in each of the cities where it operates. The company will introduce new computer systems and streamline editorial desks to trim costs amid a downturn in advertising.
“At this stage we cannot say how many roles will be made redundant,” Williams said in an e-mailed statement. “Although there will be retrenchments, many roles will be retired through natural attrition.”
News Corp., which owns 120 metropolitan, regional and rural newspapers across Australia, began charging in October for online content from the Australian, the only national broadsheet. Melbourne’s Herald Sun, Australia’s most popular newspaper, also has a web subscription.
“These kinds of cuts and changes are reasonably inevitable, so the fact that they’re addressing how they can change their structure is a positive,” Angus Gluskie, who helps manage more than $350 million at White Funds Management in Sydney, said before the CEO’s statement.
Fairfax, Australia’s second-largest newspaper publisher, said June 18 it plans to cut 22 percent of its workforce, close printing sites and introduce digital subscriptions to halt sliding sales and a stock price slump.
Fairfax’s biggest shareholder and Asia’s richest woman, Gina Rinehart, is pushing the company to address an 87 percent stock-price decline since 2007. The publisher of the Sydney Morning Herald and Australian Financial Review trades at 0.3 times (FXJ) its book value, the lowest among media companies worldwide with market capitalizations exceeding $1 billion, according to data compiled by Bloomberg.
Packer said he will support the bid in the absence of a better offer. Seven Group Holdings Ltd. (SVW), controlled by billionaire Kerry Stokes, is the second-biggest investor in Consolidated Media with a 24 percent stake, Bloomberg data show.
Seven is reviewing News Corp.’s proposal, it said in a separate statement today. The company’s Seven West Media Ltd. (SWM), the nation’s most watched free-to-air broadcaster, combined with Foxtel and Telstra last year to pay A$1.25 billion for Australian Football League rights from 2012 until 2016.
Foxtel bought billionaire John Malone’s Austar United Communications Ltd. for A$1.9 billion in cash in April, adding viewers in rural areas.
Williams ran Foxtel for almost 10 years before he was named CEO of News Ltd. in December.
“Williams would have great insider knowledge of what Foxtel is all about,” said Morningstar’s Warnes. “Don’t rule Stokes out. He has always coveted pay television.”
A deal is unlikely to be completed until the fourth quarter of 2012, Consolidated Media said. The company has retained UBS AG (UBSN) as financial adviser and Ashurst Australia for legal advice.
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