PBL two-way split to unlock billions

A PLAN to split James Packer's PBL empire into two listed vehicles is expected to unlock billions of dollars of value in its media and casino assets.

A PLAN to split James Packer's PBL empire into two listed vehicles is expected to unlock billions of dollars of value in its media and casino assets.

As exclusively revealed in The Australian yesterday, the move to divide the $15 billion group - and in the process, remove the PBL name from the stock market - is intended to apply more appropriate earnings multiples to the group's assets.

For each PBL share investors currently hold, they will receive one share in a newly created casino group, Crown, containing all of PBL's casino assets, plus one share in Consolidated Media Holdings (CMH), which will hold PBL's existing media assets.

Shareholders will also receive $3 a share in cash - a total of more than $2 billion - likely to be paid from PBL's balance sheet. This means Mr Packer's private company, Consolidated Press Holdings, will receive more than $750 million in cash.

The move comes amid uncertainty about the precise make-up of the executive management of Consolidated Media, although it is known that PBL chief executive John Alexander will become its executive chairman and Mr Packer its deputy chairman. The boards of both Crown and Consolidated Media have not yet been named.

It is believed that Mr Alexander will have complete control of Consolidated Media at this stage, with no chief executive currently assigned to the media vehicle under him.

There has been no mention of the future role of PBL's executive deputy chairman Chris Anderson, who is on many of the media company's boards. There were also no specifics on how the new vehicle would affect the role of PBL Media chief executive Ian Law.

One analyst said last night: "It is assumed Mr Law remains chief executive of PBL Media, reporting to John Alexander, who will also oversee the remaining media assets."

Meanwhile Mr Packer's new role as executive chairman of Crown highlights where his future focus lies.

It is understood the formal structure announced yesterday has been about two months in the planning, with formal advice coming from PBL's house investment bank UBS.

Mr Packer, PBL's executive chairman, has long wanted the casino assets in particular to be valued as a pure gaming play.

The reasons are easy to decipher. Some of the largest casino companies in the US, including MGM Mirage, Harrah's Entertainment and Las Vegas Sands Corp, are valued on far higher earnings multiples than PBL, because of the latter's media assets.

Broking firms have been telling clients, as noted in The Australian yesterday, that a split would allow the casino assets to be "more appropriately" priced, relative to other gaming stocks around the world. PBL acknowledged this in its ASX statement, noting that the split would "better facilitate recognition of the value of the underlying assets in the group".

But it is not only in gaming that the company believes it will unlock value. A senior source close to PBL said last night that a clear target of the split was the reinvention of PBL as a "new media" company. "New media assets will make up 70 per cent of the new vehicle."

CMH will include PBL's 50 per cent stake in the PBL Media vehicle, which has Nine Network, Ninemsn, ACP Magazines and a stake in carsales.com.au. But, more importantly, it will also include the stakes in Foxtel (25 per cent), Fox Sports (50 per cent) and Seek (27 per cent), which lie outside PBL Media.

Senior PBL sources said Foxtel was the key to the new media company. PBL chief executive officer John Alexander, who will become CMH executive chairman, said the split would "provide shareholders a more direct and efficient avenue" to Foxtel and Fox Sports.

In the present PBL framework, the stakes in Foxtel and Fox Sports represent about 10 per cent of the company's valuation. But in the new CMH format, the two big emerging forces in the group's new media will represent more than 50 per cent of the company's value.

Broking analysts were generally enthusiastic about the ability of the split to generate value for the company.

One senior broking firm media analyst said last night there could be further rises, after PBL shares yesterday closed $1.26 higher at $21.99. "I think it's a $25 stock," the analyst said.

The value of PBL's investment portfolio on the media side had been "poorly understood".

The Australian understands PBL's casino assets have an internal valuation of about $15.50-$16 a share - thereby putting the casino company's worth at $10.5-$10.9 billion - while the media assets are worth $4.50-$5 a share, valuing them at $3.05-$3.4 billion.