DEALTALK-Aussie media floats worth $7 bln on the cards

* Private equity owners CVC and KKR could offload TV stakes

* Packer’s move on Ten Network has boosted valuations

* Investors wary of lack of visibility under PE owners (For
more Reuters DEALTALKs, click [DEALTALK/])

By Victoria Thieberger

MELBOURNE, Nov 9 (BestGrowthStock) – When Australian billionaire
James Packer snapped up 18 percent of broadcaster Ten Network
(TEN.AX: ), the outlook for free-to-air television improved
overnight — as did the prospects for up to $7 billion of media
sales next year.

Packer’s share raid on Oct. 19 sparked talk that the
private equity media assets bought at the peak of the boom by
global private equity firms CVC Asia Pacific [CVC.UL] and
Kohlberg Kravis Roberts (KKR.N: ) could soon be headed back to
the market.

Packer, a third generation media mogul, has a reputation as
an astute investor and his decision to buy a stake in Ten
Network has sparked a re-assessment of the future of
free-to-air television in Australia.

“Packer’s move on Channel Ten has certainly pushed up the
valuations of Ten and its competitors. I suspect private equity
are just waiting for a rally in the equity markets to justify a
higher exit multiple,” said Citi analyst Justin Diddams.

The buyouts of the owners of Australia’s two other
commercial networks, Seven and Nine, marked the peak of the
buyout boom in in 2006 and 2007 before the global financial
crisis put a hold on leveraged dealmaking for three years.

But a turn in the advertising market, which has boosted
revenues, and the renewed vote of confidence in free TV from
Packer, one of Australia’s former media scions, means 2011
could see a $5 billion float of CVC-owned PBL Media and the
sale of KKR’s 48 percent stake in Seven Media Group (SVW.AX: ).

“In banking circles a lot of work is being done on sounding
out the market,” said Constellation Capital analyst Brian Han.


For story on Packer’s share raid on Ten Network:

For a Dealtalk on Australia share sales [ID:nSGE6A203J]

For a PDF on the Australian economy:


Morgan Stanley says Seven Media could have an enterprise
value of A$4 billion, based on an earnings multiple of 10
times. Third-ranked Ten Network is currently trading at a
forward earnings multiple of 14 times, according to Thomson
Reuters data.

“Free-to-air has had a mini-renaissance with Packer getting
involved with Ten. I’m not sure I can see it happening in the
next couple of months but I wouldn’t be surprised if it
happened next year,” said one investment banker.

Packer sold half of PBL, which owns the Nine Network and
the country’s largest magazine publisher ACP, to CVC for A$4.5
billion in 2006, and the remainder over the next two years to
focus on his gaming and casino investments.

The Australian Financial Review has said CVC executives
want to float PBL in March. It would be the biggest
private-equity float since TPG sold out of retailer Myer
(MYR.AX: ) in late 2009.

But a source close to CVC said there are no immediate plans
to float. “James Packer is buying in (to Ten) because he thinks
there is serious upside, so now is not the time to sell,” the
person said, speaking on condition of anonymity.


Analysts’ diagrams of the incestuous nature of ownership of
Australia’s TV sector already resemble a can of worms, and
Packer’s move is being reviewed by the competition regulator.

Indeed, Packer plans to share half of his Ten stake with
mate and fellow media player Lachlan Murdoch, son of Rupert
Murdoch, who heads U.S. media conglomerate News Corp (NWSA.O: ).

On Tuesday, both Packer and Lachlan Murdoch accepted board
seats at Ten.

Lachlan Murdoch is also on the board of News Corp (NWS.AX: )
and has investments in radio and regional TV through his
private investment company Illyria.

Packer’s 49 percent-owned Consolidated Media Holdings
(CMJ.AX: ) and News Corp also each own 25 percent of pay TV
operator Foxtel.

Analysts say despite the denials, the market is turning
towards a better time for floats.


One of the problems for potential investors in
private-to-public floats is the lack of visibility on how the
businesses have been run for three or four years.

Institutional investors are particularly skeptical about
how much costs have been cut or capital expenditure delayed to
improve current results.

“We’d have to see what sort of gearing levels, what
multiples they want to put on things,” said John Grace,
portfolio manager at Ausbil Dexia, which owns 4.7 percent of

Certainly Myer left a bad taste in the mouths of investors
— in a tough year for retailers, it has never traded at its
offer price of A$4.10 and is currently 6 percent below.

Both PBL Media and Seven carry heavy debt burdens that are
due to be refinanced in late 2012 or early 2013, making next
year an ideal time for their owners to restructure and sell.

How much CVC and KKR make on their investments will depend
crucially on the size of the stakes they offer, gearing levels
and a recovery in the weak IPO market.

While the sharp improvement in ad revenues this year is
expected to slow, the outlook is nevertheless still buoyant.
Upcoming regulatory rulings on sports rights are also expected
to favour the free-to-air broadcasters over pay TV.

“The timing is pretty perfect for any re-floats,” says
Constellation’s Han, who owns Ten shares.

“But I would not be buying into any IPO if it’s got a high
gearing ratio at the top of the (ad) cycle. The risk is how
much have the PE owners invested in the business, versus
wringing them for cash,” he said.
(Additional reporting by Michael Smith; Editing by Dhara

DEALTALK-Aussie media floats worth $7 bln on the cards