News Ltd. in $2 billion bid for Packer's CMH

Shut out of U.K. dealmaking for the near future, Rupert Murdoch is looking homeward as News Corp.’s Aussie arm News Ltd. makes a $2 billion bid for James Packer’s Consolidated Media Holdings.

Move comes a year after the mogul’s $12 billion deal to buy the remaining chunk of U.K. satcaster BSkyB fell through amid the phone hacking scandal. Public opinion is such that the BSkyB deal won’t be revived anytime soon. Meanwhile, News Corp. has been using its enormous war chest to fund a massive $10 billion stock buyback, to Wall Street’s immensedelight. It hadn’t been clear just when News Corp. would be ready to make another multibillion-dollar strategic move. No one had particularly expected it to come in Australia, although that’s where Murdoch’s oldest son Lachlan settled after leaving his job as heir apparent at News Corp.’s Manhattan HQ in 2005. 

The Street applauded the Aussie deal, and News Corp. stock popped higher, rising as much as 1.6% in a pretty flat market. The pact doubles News Corp.’s stake in Australian pay TV operator Foxtel to 50% and wraps up 100% of Fox Sports Australia.

News Corp. execs, in particular COO Chase Carey, have been outspoken about their desire to simplify minority holdings, and the acquisition is the latest move in that direction after the conglom sold its stake in NDS and buying out the shares it didn’t already own in ESPN Star Sports and Fox Sports Latin America.

“It’s not so big that it will impact the stock buyback,” said Evercore Partners’ Alan Gould of the new deal. “They get half of Foxtel and consolidate the programming assets.”

“As long as they didn’t buy more Australian newspapers,” said another analyst.

Nomura’s Michael Nathanson called the price “reasonable” and said the deal is “a positive incremental use of cash.”

“The company already has a strong and growing mix of assets with Fox Intl. Channels and Star India,” he said, estimating existing international cable networks including Star will grow at a 20% CAGR (compound annual growth rate), surpassing $1.1 billion in operating earnings in fiscal 2014. 

Australian telco group Telstra remains a 50% partner in Foxtel, which has 2.2 million subscribers. Rumors had been circulating that Telstra might make a tilt for full control, setting the stage for a possible showdown with News Corp.

Executive chairman Packer said CMH is planning to accept the offer, which works out to about $3.50 a share in cash, unless it get a higher one. News Corp. execs said that’s their best and last price,

Move is a friendly one, with News Corp. and CMH already partners and Packer long aiming to shed his media interests and concentrate on gaming. “CPH welcomes News’ proposal and looks forward to working together to address the detailed terms and conditions,” Packer said in a statement.

Current News Ltd. topper Kim Williams previously headed up Foxtel.

In a separate release, News Ltd. announced a major revamp in an effort to cut costs. Williams declined to quantify any potential savings, but layoffs are widely expected at the papers, which have seen declines in advertising and circulation.

The takeover will be subject to approval by corporate watchdog the Australian Competition and Consumer Commission.

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