Packer’s next move

It’s been another big week in the remaking of the Packer empire. James Packer’s decision to sell his stake in Challenger Financial Services for just under $400 million takes the tally of his asset sales over the last 12 months to almost $1 billion. In the last four months, his wealth has increased by about $700 million.

But while Packer’s portfolio is focused and brimming with cash, Packer watchers are asking one big question: what next?

To try to answer that question, it’s best to start by trying to get a picture of James Packer’s fortune post his extraordinary asset sell-off.

The Packer family empire has undergone a radical transformation since the death of Kerry Packer on Boxing Day, 2005.

While the most obvious change came through Packer’s decision to offload the family’s interest in mainstream media (specifically the Nine Network and Australian Consolidated Press, held through Publishing & Broadcasting Limited) the changes to the family’s private assets has been no less dramatic.

Valuing Kerry Packer’s fortune was a nightmare due to the breadth and complexity of his private holdings. Kerry dabbled in industries as varied as the fashion sector (through the Pretty Girl fashion business), the chemicals sector (through US group Huntsman), the agribusiness sector (through Monsanto and the Teys Brothers meat company) and technology (through Sydney software security company, PC Tools).

There was also a huge portfolio of rural land holdings and, at various stages of Kerry’s career, a range of investments in Australian listed companies, including Westpac, Fairfax and Australian National Industries.

But while Kerry Packer was constantly trading in and out his investments, James Packer has moved to streamline the family’s interests, particularly in the last 12 months.

In August 2008, Packer pocketed about $60 million from his investment in PC Tools, which was sold to US security giant Symantec. In March, Packer sold his family’s rural land holdings to British private equity firm Terra Firma for around $425 million.

The sell-off continued in late August when he sold part of his holding in power and gas minnow Energy World Corporation for around $10 million. He rounded off the big sales by flogging the Challenger stake for $396 million and is widely expected to sell the family stake in property developer Sunland, which would net just under $30 million.

Packer has also sold more than $80 million worth of personal assets, including his luxury yacht and apartment in Mayfair.

Of course, these are just the private assets that have been sold. Packer’s Consolidated Media Holdings flogged its stake in online classifieds company Seek for $425 million, and its headquarters in Park Street, Sydney for $50 million.

So what does that leave in Packer’s portfolio?

The anchors are his stakes in casino business Crown (valued at $2.1 billion) and Consolidated Media Holdings (valued at $927 million). His remaining stake in Energy World Corporation is worth $75 million, while his Sunland stake is currently worth around $28 million. He also owns a $5.5 million stake in Magellan Flagship Fund, which is run by long-time Packer family adviser Chris Mackay.

All up, the listed portfolio is worth $3.2 billion, but it is worth noting that these investments have risen in value by $557 million or 21% since the start of June.

Add in $400 million from the sale of the Challenger stake, plus private assets (including property) of around $100 million and Packer’s fortune is sitting at around $3.7 billion.

Yes, that’s a long way from the $6 billion estimate published by BRW in 2008, but it’s a big four-month gain since the end of May, when BRW put Packer’s fortune at $3 billion.

Importantly, Packer is sitting on a lot of cash from the sale of the Challenger stake and Terra Firma. This gives him a few options:

– Take Consolidated Media private

With Kerry Stokes’ Seven Network now holdings just under 20% of Consolidated Media, there has been plenty of speculation that Packer might thwart Stokes’ attempt to get his hands on ConsMedia by buying the company himself.

This option has all but been ruled out by the 12-month truce agreement between Stokes and Packer, whereby Stokes has agreed not to buy any shares in ConsMedia in return for two seats on the company’s board.

– Take Crown private

Another possibility, but the sheer cost of such a move – perhaps as much as $4 billion – almost certainly rules it out. Also, there is no Kerry Stokes-like investor on the Crown registry – Packer is firmly in control and likely to remain so.

– Go bargain hunting

Citi gaming analyst Jenny Owens speculated this week that Packer could use his pile of cash to go hunting for cheap casino assets in the US.

“2010 could prove an opportunistic time to buy U.S. casino assets, as the ongoing downturn could be prolonged,” wrote Owen. “Those assets could then be vended into Crown at a later date and a higher multiple.”

Buying assets privately and then selling them to the listed vehicle was a classic Kerry Packer play. However, Packer is likely to be cautious about entering the US, after Crown pulled out of a $1.5 billion deal to buy a group of North American casinos.

– Keep selling assets

Packer’s next move may well be to keep flogging unwanted parts of the empire. The Sunland stake appears likely to go, and it remains to be seen whether Packer will keep the remaining stake in Energy World Corporation.

Packer’s plans remain a mystery, even to his inner circle of advisers – apparently, chief adviser Ashok Jacob didn’t even know Packer was about to sell the Challenger stake. But having refocused his empire tightly on gambling and pay television, it’s a fair bet Packer will push further into these sectors in the coming months.