Packer chips in for casinos

The Australian October 19, 2006

Packer chips in for casinos
By Jane Schulze and Michael Sainsbury
October 19, 2006

JAMES Packer has cashed up to compete in the worldwide “land-grab” for gaming and entertainment after yesterday selling half his media assets in a $4.5 billion deal with private equity group CVC Asia Pacific.

Mr Packer’s Publishing and Broadcasting Ltd is now debt free with $2.7 billion in cash after creating a new company called PBL Media, which has a mandate for aggressive media expansion and will be equally owned by the listed PBL and CVC.

The deal leaves PBL with some media assets – including its stakes in Foxtel and online jobs site Seek – but largely focused on developing gaming assets that have spread from the Crown casino complex in Melbourne to ventures in Macau, Europe and the US.

“For PBL it releases cash at a time when there is a land-grab under way for gaming and entertainment assets around the world,” Mr Packer said.

The deal was struck in only five weeks after the strategy was settled on six months ago.

PBL also explored the option for a stock market float of its assets with bankers UBS but decided it would be more cumbersome and the process too lengthy, people familiar with the deal said.

“Once James Packer decided to move, he moved quickly,” one source said.

PBL already has a half share with Lawrence Ho in the Melco joint venture, which is building two casinos in Macau – the soon-to-open Crown Macau and the City of Dreams, which is due to open in 2008.

PBL is also slated to buy from Mr Packer a half share in a British casino joint venture with the Aspinall family of Britain, which is expanding in Britain and looking for opportunities in Europe.

Mr Packer is also exploring opportunities with Las Vegas entrepreneur Steve Wynn, from whom Mr Packer bought a gaming sub-concession in Macau for $US900 million ($1.2 billion).

Mr Packer and PBL chief John Alexander recently visited the US to hold talks with Mr Wynn, as revealed exclusively in The Australian this week. Melco is also bidding for the second casino licence in Singapore, where Mr Packer was this week.

“We would expect PBL to position itself to bid for a licence in Japan when that market opens up in 2008, and smaller deals are possible in the Philippines, Vietnam, Mongolia and maybe even the US,” said Merrill Lynch analyst Patrick Russel.

US gaming capital Las Vegas is booming and offers roughly equal revenue streams for casino owners from gaming, entertainment and food and drinks.

PBL Media will have debt of $3.75 billion, but it will not be paying dividends so all earnings will instead be used to repay that amount. PBL will not be consolidating PBL Media into its accounts, but earnings are already believed to comfortably cover interest costs so PBL Media could also borrow more cash if needed to fund a deal. The new $3.75 billion in non-recourse debt from PBL Media will be paid to PBL, which will also receive another $982 million from CVC, giving it a $4.54 billion inflow of cash.

The $982 million pays for a convertible note which will be triggered once foreign ownership restrictions on media groups are lifted next year.

The cash will enable PBL to extinguish its debt of $1.8 billion and give it $2.7 billion in cash to invest in gaming or other sectors.

Mr Alexander will continue as the chief executive of the listed PBL, while magazine chief Ian Law will become PBL Media’s chief executive.

Mr Packer said the fact that the media arm would hold the non-recourse debt meant PBL’s shareholders were protected from the additional capital risk in media expansion. PBL has appointed ABN AMRO and Westpac to arrange meetings with Australian debt investors next week, following the recapitalisation of its media interests.

The meetings will discuss the transaction and brief investors with regard to the company’s financing plans.

Former PBL chief executive Nick Falloon, who is now the executive chairman of rival Network Ten, praised the move.

“The deal in itself hasn’t changed any ownership of any assets other than bringing in some capital, so on the face of it it looks like a pretty astute deal,” he said.

But credit ratings agency Moody’s said it had placed some of PBL’s debt under review following news of the media spin-off.