Why News Corp’s bid for Consolidated Media tells us where James Packer and Rupert Murdoch are heading

News Corporation has kicked off a day of big announcements with a doozy: News has lobbed a full $1.97 billion takeover bid for Consolidated Media, the James Packer-controlled vehicle that owns a 25% stake in pay television monolith Foxtel.

Packer has been known to be shopping his 50% stake in Consolidated Media around for a number of weeks, with Telstra (which holds a 50% stake in Foxtel) and Kerry Stokes’ Seven Group (which has a 24.4% stake in Consolidated Media) said to be interested parties as they seek to get a bigger slice of Australia’s pay television pie.

But News has beaten those groups to the punch with a $3.50-a-share offer that represents a 13.6% premium to yesterday’s closing price of $3.08.

Packer said in a short statement that he “looks forward to CMH and News working together to address the detailed terms and conditions. Subject to this, CPH (Packer’s private investment vehicle), considering the offer price of $3.50 per share to be fair, will support the Proposal in the absence of a superior cash offer.”

The takeover bid is a collision of three of Australia’s biggest media moguls: Rupert Murdoch, James Packer and Kerry Stokes.

And the deal’s timing – coming as it does against a backdrop of savage job cuts at Fairfax Media, mooted job losses at News Corp’s Australian business News Limited, and News Limited’s investment in niche online publisher Australian Independent Business Media – shows how at least two of these three empires are in a state of flux.

What the deal says about Rupert Murdoch

While much of News Corporation’s attention in the last 12 months has been focused on battling scandals and issues in its newspaper divisions in Britain and Australia, printing presses are no longer the engine room of Rupert Murdoch’s empire.

Take a look at News Corp’s third quarter results, released in early May. While revenue was up just 2% to $8.4 billion, income increased 23% thanks to the stellar performance of its cable (pay) television programming division, where earnings jumped 15% or $111 million in a quarter.

In other words, Murdoch knows that pay television pays. While his newspaper empire might be in decline, Murdoch is smartly taking advantage of James Packer’s desire to get out of media by scooping up Consolidated Media at what will probably look like a pretty good price in the long term.

Even more so when you consider he also gets Consolidated Media’s 50% share of the lucrative Fox Sports channels, taking News to 100% ownership of this business.

Pay TV, sport, entertainment – these are the cornerstones of Murdoch’s empire now, no matter how much attention his newspapers still get.

What the deal says about James Packer

This is a tipping point for Packer, who will sever his last tie with the media sector and shift the bulk of his empire towards gaming, potentially through the acquisition of Sydney-based casino group Echo Entertainment.

If Packer wants to buy Echo, he’s going to need plenty of cash, and selling his stake in Consolidated Media will raise just under $1 billion.

Whether that is enough to take on Echo’s other major shareholding, Singapore’s Genting Group, in a bidding war is not clear – indeed, there are still many who suggest Genting and Packer’s Crown Limited could work together to take control of Echo.

But cash will give Packer options and flexibility – valuable commodities in any negotiation.

What the deal says about Kerry Stokes

We are yet to hear how Kerry Stokes feels about the prospect of his mate James Packer (well, they are friends at present, despite past squabbles) selling out of Consolidated Media.

That raises a big question: How keen is Stokes to get a seat at the pay television table? Or, more to the point: Is he willing to lose the small stake of the pay TV pie he has through his Consolidated Media shareholding?

The fact Stokes hasn’t beaten Murdoch to the punch with a takeover offer of his own for Consolidated Media suggests Stokes was in no hurry to move. But Murdoch’s bid may force Stokes’ hand. Could he start a bidding war with Rupert Murdoch for the asset?

Three empires, three different directions – and plenty of intrigue to come.

This article first appeared on SmartCompany.