The A$3.3 billion ($3.04 billion) buyout offer by second-generation media tycoons Lachlan Murdoch and James Packer for Australia's Consolidated Media Holdings was withdrawn yesterday, becoming the latest casualty of the difficult financing environment.
On January 21 Lachlan Murdoch, via his closely held company Illyria, and Consolidated Press Holdings, the majority shareholder of Consolidated Media, announced a joint proposal to acquire 100% of Consolidated Media. The acquirers were offering a fixed amount of A$4.06 per share in cash plus a variable amount linked to the volume weighted average price at which Seek traded as shareholders were being offered 0.1116 Seek shares for every Consolidated Media share they held. Seek is Australia's largest internet jobs website. Based on the closing price of Seek on January 18, the offer price translated to A$4.80 per share.
The proposal was highly preliminary when it was announced and was subject to due diligence, financing and the finalisation of a joint venture agreement between Murdoch and Packer as well as several other conditions. The board of Consolidated Media said it decided to share details of the proposal with shareholders of Consolidated Media at an early stage given the involvement of its majority owner, Consolidated Press.
The take-private proposal followed the demerger of the erstwhile Publishing and Broadcasting into two separate listed entities: Crown in which all the gaming businesses namely Crown and Burswood casinos, a 41.4% stake in Melco PBL which owns a casino in Macau and other gaming assets; and Consolidated Media in which the media assets were housed. The media assets included stakes in PBL Media, Foxtel, Fox Sports, Seek and Ticketek.
The demerger proposal, on which UBS advised, was announced in May last year and effected by year end. The take-private proposal for Consolidated Media from Murdoch and Packer followed soon after. At the time it was widely touted as a comeback for Lachlan Murdoch following his withdrawal from an active management role in his father, Rupert's, News Corporation business.
Rumours that the takeover could be affected by the slowdown in credit markets following the subprime situation were confirmed in early March when Murdoch advised Consolidated Media that SPO Partners had withdrawn its equity commitment to Illyria.
SPO Partners is a California-headquartered private investment company and merchant bank which invests in public companies and makes private equity investments.
But Illyria said in its Australia Securities Exchange filing on March 6 that it "remains enthusiastic about the proposal" and "sought to replace the SPO equity commitment from within its existing investor group and third parties". It went on to comment that the new financiers with which it was in discussion were aware of "the need to be able to conclude the arrangements in an abbreviated time period".
Market commentators were loss optimistic that Murdoch would be able to put together financing as credit conditions have become more difficult, even in the three months since the bid was announced. Specifically, deals backed by or led by private equity are dwindling as financial sponsors find it challenging to raise leverage to finance their deals and meet their target returns.
Australian media reported last week that Packer was trying to put together a new proposal with private equity firm Providence Equity Partners after SPO withdrew and that Providence was proving a hard negotiator.
In his communication dated April 7 that Illyria would withdraw the takeover proposal, Murdoch wrote: "Illyira has had success in arranging equity funding and has substantially progressed in negotiations with its debt financiers" but went on to say Illyria could not proceed due to "material changes in the overall transaction terms".
Illyria and Consolidated were being advised by Lazard Carnegie Wylie. UBS was appointed to advise the board of Consolidated Media.
Consolidated Media last traded at A$4.07.