Murdoch Flies Out To Find New Partner In Consolidated Media Deal

The Age

Friday March 7, 2008

Miriam Steffens, Sydney

LACHLAN Murdoch has set off on a desperate search for a new private equity partner to buy out Consolidated Media Holdings, after his US financiers pulled out of the $3.3 billion deal.

The media scion arrived in the US yesterday after the San Francisco-based buy-out firm, SPO Partners, told him on Wednesday that it had changed its mind about taking part in the consortium.

The setback has cast doubt over his plans to privatise the media company with his friend and former One.Tel partner, James Packer. The deal, which was to mark Mr Murdoch's spectacular return to the Australian media landscape, may now become a victim of the global liquidity crisis.

The turnabout came just days after SPO founder John Scully and associate Ed McDermott were in Sydney to discuss the takeover with media executives. Industry sources said they had sounded "genuinely enthusiastic", praising CMH's pay TV assets, Foxtel and Fox Sports.

CMH said yesterday the firm had changed its mind "primarily due to changes in investment conditions" following the meltdown in global debt markets.

Sources close to the talks also cited the 9% rise in the Australian dollar since late January, which made the deal more expensive for the US financiers, and doubts about the recovery of the struggling Nine Network. Mr Murdoch wasn't available for comment, having jumped on the first available flight to meet prospective investors on the east and west coasts of the US to rescue the deal.

Mr Murdoch was believed to be optimistic he could find a quick replacement at the same conditions, with at least two firms having indicated interest to his company, Illyria.

Sources were not able to confirm speculation that private equity firm Hellman & Friedman was one of the possible investors.

A source close to Mr Packer's family company, Consolidated Press Holdings, described the mood as "very sanguine". "The world has changed, and the investment environment has got tougher," he said.

His comments mirrored those of private equity executives at an industry conference in Sydney yesterday. "The supply of debt has effectively gone to zero," said Archer Capital head Peter Wiggs. "It's really hard to do deals."

CMH held a crisis board meeting yesterday afternoon to discuss whether SPO's pull-out had effectively killed the deal. The company said it was "not in a position to give any assurance" that Illyria would be able to replace SPO.

Mr Murdoch teamed up with Mr Packer in January to launch the takeover. He spent the past four weeks conducting due diligence and had just asked CMH for an extension of at least two weeks.

The venture of Mr Murdoch and Mr Packer has secured $900 million in debt funding from an ANZ-led bank consortium. Both sides were expected to put in close to $1 billion to come up with the $2.8 billion cash component of the deal, with the remainder paid with shares in the job site Seek.

CMH shares were halted from trading yesterday. They last traded at $4.30. Media analysts said the stock was likely to open lower. "In the event that the bid does not proceed, there is a risk that the share price revert to our $4.09 valuation," said Andrew Anagnostellis of Deutsche Bank.

© 2008 The Age

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