Taking on the Packers in 1999

By Stephen Mayne
January 10, 2008

Punching on with the Packers is always great sport and few were better than the 1999 AGM. This was first published on October 27, 1999, in jeffed.com.

After Kerry Packer beat up on my proxy at last year's Publishing and Broadcasting Ltd, this year's PBL gathering was one not to be missed.

Who could forget when Daily Telegraph police reporter Charles Miranda got the full treatment from King Kerry who paternally stepped in to protect son James during his first outing as PBL chairman.

''You don't want to ask too many questions or you might bring down the wrath of God on you,'' Kerry boomed as Chuck helplessly pleaded that he was ''only a humble police reporter''.

After the disappointment of James Packer and Lachlan Murdoch both failing to front the One.Tel AGM last Friday, it was a double bonus when James Packer walked in to the Sheridan on the Park at 9.25am yesterday for the ecorp AGM and was then joined at 11am for the PBL gathering by his famous and filthy rich father.

Ecorp's wunderkind chairman Daniel Petrie, who is 40 but looks 25, gave an impressive bells and whistles presentation to shareholders which James Packer could well have learnt from.

After Petrie admitted some parts of the business weren't going as well as possible, Jeffed.com inquired as to which bits and he identified the internet stockbroking arm Sharetrade.

A few eyebrows were raised when the Packers sold their 100 per cent owned ticketing company Ticketek into ecorp, which they effectively own 30 per cent of, for about $50 million. Jeffed.com has heard Seven Network types argue this was way too much given their deal with rival Ticketmaster but Petrie was having none off it when this was raised. He also downplayed Jeffed.com's suggesetion that ecorp could suffer some fallout from the ''Tickets for the Rich'' scandal given its contract with the SOCOG. Michael Knight was blaming SOCOG's ticketing and marketing advisers for the secrecy but it is little unclear if that is ecorp.

The biggest issue around ecorp is undoubtedly the ridiculously generous deal given to Petrie and his debating champion mate Jeremy Phillips by the Packers when ecorp was floated. This has apparently greatly annoyed long serving Packerites such as Nick Falloon, David Leckie and Graham Cubbin. When Falloon's re-election for the ecorp board came up jeffed.com asked why he'd dumped a large parcel of his shares a few weeks after it listed. Falloon admitted he'd sold 150,000 shares but retained a further 150,000. He pocketed a profit of about $200,000 which he said was for personal financial reasons and did not reflect a lack of confidence in the company's future.

When the time came around for Phillips and Petrie to be re-elected, Jeffed.com asked James Packer to comment on the ridiculous packages and whether it had caused a wages breakout amongst jealous colleagues. As Kate Askew wrote in the Sydney Morning Herald's CBD gossip, his denial came across as a confirmation when he said ''there has not been anything of a serious nature''.

The subsequent $9 million and $6.3 million PBL options packages for Nick Falloon and Nine boss David Leckie approved by PBL shareholders yesterday was further evidence of the ''not serious'' remuneration breakout sparked by the overpaid tech gurus.

James made a good point to ecorp shareholders about the value of the youngsters: ''From the PBL perspective, I think it's important to remember that the cash contribution PBL has made into ecorp is probably something like...$90 million, and it's sitting today on shares worth well over $1 billion.'' Try $1.8 billion to be precise.

He went on: ''Frankly, ecorp would not exist today without Daniel and Jeremy.''

The ecorp meeting wound up after about 40 minutes and when James Packer strode past Jeffed.com there was nothing on offer except a steely glare. Rather than mingling with shareholders he dashed for a private room, no doubt for some last minute coaching from Dad and his better informed executives.

After copping some flak for failing to deliver a chairman's address at last year's AGM, James opted for a minimalist approach this year. Without even rising to his feet, he read a two minute address which said little more than it's been a busy year and everything is fine. Here we go again. Another tooth pulling exercise was in order to find out what's going on at PBL.

James then successfully told shareholders they would vote on the re-election of five directors in one go. Not a murmur from the floor on this unusual time-saving, debate-reducing device. The re-election of 74-year-old Laurance Muir was approved separately and then we moved on to a discussion about the accounts.

With no-one else showing any inclination to ask a question, Jeffed.com stepped to the microphone.

The first question dealt with Crown casino. Given that the Productivity Commission draft report had turned public opinion even more strongly against gambling and that Crown's biggest supporter Jeff Kennett had been turfed out, how did he see the regulatory and political risks affecting Crown going forward. Afterall, Victorian Labor had been at war with Crown for five years and I know the Packers attempted to set up a meeting to discuss political donations with Labor on the morning of the state election, presumably after they read the Newspoll in The Australian tipping the line ball outcome. Jeffed.com also wanted to know why the first offer for Crown came from the private Packer company Consolidated Press Holdings at 45c a share and the second one was from PBL at 60c a share.

James bravely predicted he was comfortable with the regulatory environment in Victoria and that the business was going well. The market tends to disagree as part of the reason for PBL's slide from $11.20 to $8.80 in recent months has been attributed to the shock election result. Afterall, Jeff's gaming policy included a sneaky device which left the way open for Crown to get more pokies. Thankfully for PBL, Crown-hater Rob Hulls is no longer Labor's Victorian Gaming spokesman but as Attorney General he'll be keeping a close eye on casino probity matters.

James correctly pointed out that all media stocks have come off recently and he defended the 45c Crown offer from CPH because it was only a partial takeover. There's no argument from Jeffed.com that Crown hasn't added value because PBL was at $6 on the day it bid for Crown. The tax and interest savings the merger brings to the combined group make it a true ''win-win'' as the ''win-win'' columnist Steve Bartholomeusz has quite rightly pointed out in The Age.

With no-one else stepping forward, Jeffed.com then asked a question about One.Tel. The theme was similar. PBL's investment in One.Tel at 70c a share has been great with the stock now trading around $1.20, which is what Jeffed.com paid. Therefore the $235 million book value of the stake should arguably be written up in PBL's books to almost $400 million. However, the issue raised by police reporter Charles Miranda last year is still very much alive. Why did James Packer's private company get to buy into One.Tel at less than 1c a share and Kerry Packer's private flagship ConsPress Holdings at about 30c? I cheekily wound this question up by asking whether the reverse would ever happen and PBL would get a deal at 1c and then the private Packer's would later pay 70c.

A journalist mate sitting near the front claims that Kerry Packer lent across to his son and whispered ''offensive'' and sure enough James opened his answer with: ''I find that question a little offensive to be honest.''

Last year James claimed he cleared his private One.Tel investment with then PBL chairman Brian Powers, now the California-based and totally independent chairman of newspaper group John Fairfax. The offended one then defended the PBL deal by correctly pointing out that Rupert Murdoch's News Corp had taken 20 per cent of One.Tel on the same terms as PBL. Good point, but it would be nice if James and Kerry sold their extemely profitable private One.Tel holdings into PBL at a knock down price to share around some of that benefit with the institutions who have dropped more than $100 million taking a $500 million PBL placement at $10.28 a share in April this year.

Moving right along and with no other questioners, Jeffed.com's next offering was on Hoyts. Why did the ''Packers Private'' spend $600 million buying Hoyts when the ''Packers Public'', namely PBL, is a television, film and entertainment group which made $80 million profitably investing in Hoyts' rival Village Roadshow a few years back.

James responded as follows: ''CPH is a private company and we were very happy with the Hoyts acquisition. I spoke to (PBL managing director) Nick Falloon before we did the acquisition of Hoyts and he did not want to do the deal with PBL because that was before the Crown acquisition was completed. We had to refinance PBL, and PBL was very full. We were trying to float ecorp, finalise Crown, and we had a lot on the plate at a PBL level.''

This was a reasonable answer but for the fact that PBL needed a $500 million injection from its shareholders and the Packers decided to soak that from institutions and then plough $600 million off their own money into Hoyts. The instos have dropped $100 million on PBL and James comment that CPH is ''very happy'' with Hoyts would suggest they are probably $100 million in front on Hoyts.

PBL shareholders would have done better if the company had raised $1 billion through a rights issue at $6 and then it was PBL that swallowed Hoyts. The Packers Private could have kicked in $440 million to the PBL rights issue to get their stake back to 40 per cent as they promised at the time of the Crown takeover bid.

Given that this did not happen, the institutions must be thinking long and hard about the need to get some truly independent directors onto the PBL board to represent them. Afterall, institutions must now be close to owning a majority of the PBL stock but have no board seats.

Jeffed.com's fourth questions dealt with the issue of institutional unrest and whether this is leading to pressure to cut costs. Interestingly, the $500 million placement was completed in April and then Nine went out and slashed $20 million from its cost base in the June quarter. The future of loss-making operations such as The Bulletin must be up in the air given that the much-vaunted Bully revamp by new magazines chief John Alexander does not appear to have lifted circulation much. The instititutions will be telling the Packers to close it and stem the losses. However, this would be bad for Australia given the already disturbing lack of media diversity.

With the 150 PBL shareholders at the Sheraton still declining to approach a microphone, Jeffed.com got up for one last offering. Congratulations were in order for the cheap entry into Foxtel courtesy of News Corp 12 months ago, but would this stake be written up in the books, how were the three shareholders getting on and when would Foxtel turn a profit?

James ruled out a float and said the partners were getting on okay despite occasional tensions as you would expect when three giants such as PBL, News Corp and Telstra are seated at the table. The profits are slated to start flowing next year but the ever-prudent PBL would not be writing up the value of its stake.

So there it was. My interloping mate Hugo Kelly then got up and asked two questions despite not even being a shareholder. He's written his own account of the event which we've published separately.

Another shareholder declared himself a Melburnian and asked when the PBL AGM would be held at Crown. A smiling James Packer said this would happen in the future.

Another shareholder then asked about the savage scale backs of ecorp shares which were as rare as hen's teeth. After James explained that PBL did its best, the big man sitting to his left finally stirred. As James looked at me nodding and I nodded back, Kerry showed his benevolence by explaining that CPH did not take up any of its entitlement to 37 per cent of the ecorp shares which PBL was selling. This was a good point as Kerry could have pocketed more than $100 million selling his personal entitlement on the market at prices well north of $2 after taking up his entitlement through the ecorp float at just $1.20 a share. What a guy? Add that one to the endless stories of Kerry's remarkable generosity and compassion in supporting charities and tipping dealers in casinos.

After the meeting the Packers did another runner with barely an utterance to the waiting media so the only journalist who got questions answered by Australia's richest family was me. Maybe it is time for other journalists to start doing the same thing with companies that refuse to talk to journalists and which don't have any shareholders who ask sensible questions.

The Financial Review had James Packer and a couple of his offsiders in for a boardroom lunch a few weeks back so they obviously got their questions answered. And Fairfax chief executive Fred Hilmer probably got good access to the Packers at the wedding of the decade last Saturday.

But maybe we should be reading a lot more about the Packers business interest in the media. Do Australians know that the Packers run a huge multi-billion dollar petrochemical business with Salt Late City-based Mormon Jon Huntsman. And has there been much discussion about the ''Packer Public'' versus ''Packer Private'' issue. Have journalists been ringing around the institutions to ask how they feel about the placement which has turned sour. And when will our institutions start getting more active in looking after the superannuation savings of millions of Australians.

The Packers are world champions at getting the better of our lemming-like institutions. Kerry privatised PBL in the early 1980s paying the institutions a lot less than what hindsight would suggest the business was worth. Kerry then floated his magazine business for $500 million in 1991 and for a long time it trade below the $5 issue price. Kerry took Bondy's $1 billion for the three Channel Nine's on the east coast back in the 1980s and then many of those same dopey instos dropped squillions backing Bondy.

Kerry got into Crown on the ground floor with Lloyd Williams paying about $1 for his Crown shares and an average of about $4 for his 20 per cent stake in casino manager Hudson Conway. Sure enough, it was the dopey institutions which subsequently took a HudCon placement at about $14 and numerous Crown placments at prices north of $2. And when Kerry tweaked that Crown was massively overcapitalised in 1996 who did he sell 15 per cent of Crown to a $2.72 a share. The dopey institutions of course.

Packer Private then tried to buy Crown back at 45c a share and eventually Packer Public swallowed it for 60c and watched the PBL share price zoom into orbit on a heady cocktail of Crown and ecorp fever.

Blind Freddy could see PBL was massively overpriced as even Jeffed.com sold half his PBL shares earlier this year at $10.72 a pop. I must confess this was partly to recoup an $800 loss the night before at Crown's poker tables. The lesson from that night was don't try and play on the $10 table just so you can chat to Terry McCrann. Ouch.

The instos then showed that they have still learnt nothing by taking the $500 million PBL placement at $10.28 in April. They let the Packers renege on their promise to maintain their holding at 40 per cent of PBL. If the Packers aren't buying their own company then nor should institutions which are supposedly the guardians of Australian savings.

Given all of this and the episodes with One.Tel and Hoyts, it is remarkable that the instos have remained publicly silent. It is almost as remarkable that the media have not crawled all over these issues. And why haven't the media written up the Packer wedding in a similar vein to this website's account. Every journalist I've spoken to agrees that the wedding was a tasteless expression of Packer power and wealth.

Given that the entire PBL board and dozens of important executive, business associates, regulators and competitors of the Packers were at the wedding, they will probably be eligible for a $10 million tax deduction. That will be an interesting one for the Tax Office to ponder as their five year fight with the Packers rolls on.