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Why Packer did it

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by Peter Switzer

At 6:15pm last night, I broke the news on the Sky News bulletin that James Packer gave lie to the argument that he no longer cared for media stocks and that he only gambled in gambling stocks nowadays. It looks like the media blood still runs in the Packer veins, especially when it comes at $1.50 a share but the question other investors have to ask is — why did he do it?

This is the vital question any potential investor has to ask and it became obvious to me when a close friend instantly asked me: “Should I buy some Ten shares?”

My answer to my friend was based on years of watching and learning about the best ways to invest and I advised simply following the money can be a mistake, however, if the company ticks a whole lot of other boxes then the lead from a big investor can be a useful tip.

The facts

Let’s look at some vital facts first about the story:

Ten traded at $1.41 yesterday.
After the market closed, Mr Packer seized 15 per cent of Ten at a price of $1.50.
Analysts think he’s after 20 per cent and a seat at the board table.
Ten has been a big improver as a company especially with its success with the MasterChef franchise but it has other top ranking shows.

Management tick

Recall back in 2006, Packer sold most of his interests in the Nine Network to private equity group, CVC Asia Pacific for $4.6 billion. He then sold another chunk for around $500 million a year later, which meant he has virtually no material interest in Nine.

Given the turnaround of the Ten Network, the current management has to be given a tick, though they haven’t always been on the money. That said, current form really can’t be faltered which should mean the CEO Grant Blackley’s job probably is safe.

Sure this could be a hit and run raid to make a quick profit but I doubt it. Ten has cultivated the 17 to 40 audience for over a decade and these people will grow older with a link to Ten and so as long as programming can remain on the game then you could mount the argument that this is a money play worth following.

Ten Network watch

Rene Rivkin advised me years ago that when a takeover offer comes along get in because the first bid is seldom the last and you can make money over the negotiation process but timing is critical if you want a quick profit.

For those who want more guidance, I will ask my buddy Roger Montgomery on my Sky News Business Channel program tomorrow night about the intrinsic value of Ten. Under his analysis, if the share price is less than the intrinsic value then it’s a buy.

So let’s see.

In terms of what the share price should do today, it should go up with the Packer lead, however, with Wall Street down on this mortgage market mess in the States, which I have been warning about all week, our market is bound to be clobbered today.

Ten’s share price movement today should be very interesting.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, October 20, 2010