packer in ecorp clean-up

Packer in ecorp clean-up
Dec 11
Katrina Nicholas

Kerry Packer wants to take Australia's biggest listed internet company private. But he is hoping shareholders will accept less than half of what they originally paid to ride the dot com boom.

The decision to bring ecorp back into the Packer fold marks the end of an era in Australia's internet history.

Arguably the country's last great listed dot com and hyped heavily before its bourse debut, its disappearance from the Australian Stock Exchange will represent the final chapter in what has been a short but tumultuous period.

Under the deal, ecorp will spend about $95 million of its own money offering its 24 per cent minority shareholders 55¢ cash for each share held. The company would then be 100 per cent owned by the Packer-controlled Publishing and Broadcasting Ltd, which has spent the past year mopping up non-core investments.

PBL would emerge with full control of ecorp's remaining cash of about $55 million, as well as assets including Ticketek and the ninemsn and Wizard financial services joint ventures.

PBL floated ecorp at $1.20 a share in July 1999. At the peak of the dot com boom it traded above $8, valuing the company at almost $6 billion.

If minority shareholders accept ecorp's offer, which will be voted on in February, their shares will be cancelled and they will receive a tax loss to offset their original investment.

Not all investors have suffered a 54 per cent loss, however. ecorp made a lot of executives very wealthy in its heyday.

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In 2001, former chairman Daniel Petre collected $1.17 million, including $600,000 in bonuses, while his deputy chairman, Jeremy Philips, who has now also left the company, pocketed $1.16 million. In 2000, Mr Petre was paid $1.05 million and Mr Philips received $1.02 million.

ecorp chief executive Alison Deans yesterday defended the plan. The 55¢ represents a 40 per cent premium on ecorp's average share price over the past month and a 110 per cent premium on ecorp's net tangible asset backing.

"Clearly, a 40 per cent premium is an offer worth considering," Ms Deans said. She also said the proposed selective reduction of capital was a sensible way to use ecorp's lazy millions.

ecorp's sale in August of its 50 per cent interest in online auction house eBay Australia and New Zealand to its joint-venture partner, eBay Inc, netted the company about $115 million in cash.

With cash already in ecorp's coffers, that brought reserves to about $201 million. About $150 million of that is considered available capital.

"Over the course of the past four to six months, we've been looking at the best way to use those funds, and while there are still valuable investment opportunities out there, we feel this is the best way," Ms Deans said.

She said the stock had attracted modest investment support despite ecorp's significantly strengthening its balance sheet over the past year by also disposing of its interests in ePredix Inc as well as its share in the loss-making Charles Schwab Australia.

Spending $95 million of the available $150 million will leave ecorp - or, in effect, PBL - with $55 million. Ms Deans said that as ecorp would become a wholly owned subsidiary of PBL, that money would be integrated into PBL's broader strategy.

Equity analysts said yesterday PBL would most likely use the money to pay down debt. Most also agreed there was simply no longer the need for an internet currency and, with opportunities in the sector well and truly limited, ecorp's cash reserves could be better used by PBL elsewhere.

"PBL has stated publicly one of its No 1 priorities is to pay down debt and this now gives them unrestricted access to that cash," one media analyst said. Another said PBL would benefit from taking ecorp private, given it eliminated the need for expensive shareholder meetings and published financial statements.

At PBL's annual meeting last month, Mr Packer told shareholders the company would improve earnings growth in its core businesses this financial year through the reduction of debt and possible disposal of non-core assets.

ecorp's board has appointed a subcommittee to oversee the proposed capital-reduction process. The subcommittee will consist of Ms Deans and Rothschild investment banking managing director David Kingston.

KPMG has been appointed as an independent expert to provide a report to minority shareholders about whether the proposal is in their best interests.