Son Of A Gambler

We all know about Kerry Packer. Since James Packer took control of the family corporate empire, he made a huge bet on the future of the empire. Like father like son. However, Packer junior has lost heavily over the last 6 months, and all this for having taken over the Packer empire since Kerry's death in December 2005. This is the score:

* The value of Packer's flagship company, Crown Limited, in which the Packer family has a controlling interest, has fallen from A$15 a share since it was listed last year to A$6.66 (the devil's number).

* Shares in Packer's billion-dollar gambling play in Macau, Melco Crown Entertainment, have gone into free-fall, dropping just over 85 per cent, from $US22 to $US3.18, since their peak 20 months ago.

* In April Packer was offered A$4.80 a share, or $3.3 billion, for the media company CMH, by another media heir, Lachlan Murdoch. Packer declined, wanting a higher price. The shares have since plunged 60 per cent, to A$1.94, closing on Friday at A$2.02. Almost A$2 billion in value has evaporated since the bid.

* Shares in the Packer-controlled investment company Challenger Financial Services Group have fallen from A$6.58 to A$1.785 in the past year, a 73 per cent plunge for a company with a large number of small investors attracted by the Packer name.

* Australia's biggest mortgage fund, Challenger Howard, 20 per cent owned by Packer's CPH, suspended investor redemptions last week, freezing A$2.8 billion because it said the Federal Government's pledge to guarantee bank deposits had caused a run on the fund.

* Crown's plans to build the tallest tower in Las Vegas in a multibillion-dollar casino-hotel development have been abandoned, with a A$44 million write-off in development costs.

* Seek Limited, the online company in which Packer holds a 27 per cent interest, has had a run on its shares, which have fallen 40 per cent since September from A$5.60 to A$3.65.

Packer's net worth is now less than half what it was a year ago. His self-worth might be similar.

It could be worse. Macquarie Bank, known as "the millionaires factory" for the exorbitant rewards its executives paid themselves, was savaged for years by scathing assessments by analysts aghast at the size and secrecy of its fee structure. Now the bill has come due, paid for by its shareholders. Macquarie Group's share price has plunged 71 per cent from a peak of A$98.50 last year, to A$28.75 on Friday. Readers of my blog would have been familiar with my incessant bearish views on Macquarie Bank before.

Even more blood has been shed at its reckless imitator, Babcock & Brown, whose market value has been destroyed since it peaked last year at A$33.90. It closed at A$1.40 on Friday, having lost 96 per cent of its market value and 100 per cent of its reputation.

Anyway, back to James Packer, in light of his own personal financial woes as cited above, he has cut the 52-year ties to his late father Kerry's media empire and leaves the once all-powerful Nine Network and ACP Magazines in the hands of financial engineers. It's a big deal breaking away from his family's tradition and not to be on the board. However, James is also walking out of there with A$5.5 billion in his pocket.

Back in October 2006, James moved swiftly to hive off half of PBL Media to the private equity firm CVC Asia Pacific. He pocketed A$4.6 billion in cash as he sought to pursue his ambition to build an empire of his own with casinos in Australia, Macau and the US. The second stage came last year, when he sold another 25 per cent of the business to CVC for A$525 million.

Packer still owns 25 per cent in PBL Media, which can now be diluted over time. For James Packer, selling most of PBL Media at the top of the private equity boom might be the deal of his life, akin to his father selling Nine for A$1 billion in 1987 to Alan Bond. James Packer did as good as his dad in this PBL deal. He sold it to a second Alan Bond, which is the CVC people.

Selling high provided the financial windfall to push his expansion in the $343 billion global gaming market. Only this time, few expect he will buy back the media company.

The resignation leaves Packer's Consolidated Media Holdings with a half stake in Fox Sports, 25 per cent of the pay TV operator Foxtel and a 27 per cent stake in the job advertising site Seek. But for the first time, a Packer no longer calls the shots at Nine, which is struggling in the ratings and under a mountain of debt.

Private equity managers more experienced in financial engineering than boosting television ratings or magazine sales now face an uphill battle to turn around the businesses and assure their bankers they can meet their debt obligations.

The most pressing issue is rooted in the structure of Packer's private equity deal. It leaves CVC with a media company reeling under a debt load of $4.2 billion. Earning just $463 million in pre-tax earnings last year, the business struggled to pay the interest on that debt amid an advertising recession.

There are suggestions that earnings from the media assets may not be able to pay back interest payments on the debt by the end of the year.

Packer decided to pull the plug on the weekend. Analysts said it may have been made to avoid any repeat of the One.Tel disaster, when he was on the board of the collapsing telecommunications company with Lachlan Murdoch.

Packer's exit from PBL Media comes six months after a collapsed $3.2 billion buy-out of Consolidated Media Holdings with Murdoch, which Packer scuttled by refusing to budge on price. Since then, CMH shares have more than halved in value.

Given their media experience, CMH directors could see they were possibly "looking at a gradual collapse with a high-cost debt market", Mr Colman said. Resigning from PBL Media, "the directors have walked away from personal liabilities".

Not that Packer is carefree. He's fallen from the top of the Rich 200 List as share price falls in CMH and his gaming arm, Crown, eroded his wealth, last estimated at $5.2 billion in May. He has scrapped a plan to build a casino resort with the tallest tower in Las Vegas, and there are questions about Macau.

James Packer has now fallen from the top of the Rich 200 List as share price falls in CMH and his gaming arm, Crown, eroded his wealth, last estimated at A$5.2 billion in May 2008. He is now worth less than half that amount. Poor guy.

p/s photos: Gigi Lai (sigh, my TV queen has retire from acting in TV series...)