PBL shares soar on Hoyts deal

Shares of Publishing & Broadcasting (PBL), owner of Australia's top-rated television network, Ten, rose after the company teamed with West Australian Newspapers Holdings to buy the Hoyts cinema chain from Kerry Packer.

Publishing & Broadcasting will pay A$173.5 million ($184.5 million) in stock to Packer, increasing Packer's stake in the media company to 39 per cent.

West Australian Newspapers will pay A$173.5 million in cash and the joint venture will assume A$173 million debt, the companies said after the close of trading yesterday.

Publishing & Broadcasting shares rose 2.7 per cent to A$16.55 in Sydney, the highest since March 2000. Adding Hoyts's 377 screens allows the company to cross-promote its TV stations, magazines and casinos, including Burswood casino in Perth, where West Australian Newspapers publishes the city's only daily.

The acquisition "makes sense for Publishing & Broadcasting because it fits into its whole distribution chain from TV, Foxtel to magazines", said Olivia Cartwright, a media analyst at CommSec, Australia's biggest online broker.

West Australian's stock fell 1.9 per cent to A$8.50 on concern the company is taking on debt to fund its expansion into a new industry. The company gets about 90 per cent of its earnings from one newspaper, the West Australian in Perth.

"It's a big transaction for West Australian, and it's a risk because they've got no experience outside the newspaper business," said Angus Gluskie, who manages the equivalent of A$380 million in stocks at White Funds Management in Sydney.

West Australian chief executive Ian Law said there were a "number of parallels" between cinemas and newspapers. "I'd describe both of them as mature business sectors but that doesn't mean you can't achieve growth," he said in an interview.

Hoyts operates 377 screens in 47 cinema complexes in Australia and New Zealand, the companies said. It also operates a film distribution business Hoyts Distribution, and cinema advertising business Val Morgan.

Cinema admissions are forecast to rise 1.2 per cent per year in Australia in the four years to 2008, boosting box office revenue by 3.9 per cent a year, Hoyts said, citing a study by PricewaterhouseCoopers.

"West Australian has been looking for some time to buy something to grow earnings," said Greg Fraser, a media analyst at Shaw Stockbroking. "The question is where will growth come from?"

Law said: "We don't see it as a high-growth story, but we see it as a good sustainable resilient business pushing out good cash-flow, so we felt it fitted well with the expectations of our shareholders."

Packer, Australia's richest man, bought Hoyts in 1999 for A$625 million.

- BLOOMBERG