Network
Telstra may be barred from buying new wireless licenses unless the Melbourne-based company, once Australias phone monopoly, sells the Foxtel stake and separates its retail and network divisions, the government said today. Murdochs News Corp., owner of the Wall Street Journal and the Fox broadcast network, owns 25 percent of Foxtel, as does Packers Consolidated Media Holdings. Stokess Seven Network Ltd. owns 20 percent of Consolidated Media.
“In the event of a sale, we would expect both Consolidated Media and News Corp. would elect to increase their stakes in Foxtel from 25 percent to 50 percent,” Merrill Lynch Research Analyst Alice Bennett wrote in a report today. “With Seven sitting on A$1.1 billion of cash, we think it is very well- positioned to help fund Consolidateds purchase.”
Foxtel has attracted 1.6 million users with exclusive broadcasts of soccer, Australian Rules football and Golden Globe-award winning shows such as “True Blood.” The company may be worth as much as A$3.4 billion ($2.9 billion), Bennett wrote. Pretax profit at the company, which has more than 60 percent of Australias pay-TV market based on the latest subscriber numbers, totaled A$135 million in the 12 months ended June 30 as revenue grew 11 percent to A$1.84 billion.
“Foxtel is a dominant player in the arena of pay TV, and its still growing,” said Mark Freeman, who helps manage about $5 billion as chief investment officer of Australian Foundation Investment Co. “It has become a business in its own right” and increased control of Foxtel would be a prize for any of the potential buyers, he said.
Seven spokesman Simon Francis declined to comment. Calls to News Corp. and Consolidated Media werent returned.
Gaining Control
Consolidated Media shares rose 2 percent to A$3.01 at the close of Sydney trading, valuing the company at A$2.1 billion. Telstra fell 4.3 percent. Seven was unchanged at A$6.29, for a market capitalization of A$1.2 billion.
Foxtels buyer would gain control at a time when the networks subscriber and product base is expanding. The company saw an 11 percent gain in subscribers last fiscal year.
The possibility of a Foxtel purchase puts the battle for control of Consolidated Media earlier this year into context, analysts say. Stokes, 69, and Packer, 42, competed this year in building up their stakes in the media company. Analysts at Citigroup Inc. and JPMorgan Chase & Co. speculated at the time that Stokes real target was influence over Foxtel.
“Stokes and Seven have been positioning for this eventuality through their Consolidated Media involvement,” said Angus Gluskie, who manages about $300 million at White Funds Management Pty. in Sydney.
Truce
The truce with Packer may not stop Seven using its cash holdings to make a play for Foxtel separate from Consolidated, Australian Foundations Freeman said.
Stokes owns almost 49 percent of Sydney-based Seven, whose investments include 23 percent of West Australian Newspapers Holdings Ltd. and a half share of the nations most-watched television network and second-largest magazine publisher.
“It is widely known that Mr. Stokes wants exposure to Pay TV,” Colin Morawski, an analyst at JPMorgan in Sydney, said in a note to clients earlier this year.