Paul McIntyre: Macquarie moves into media

Investors might have witnessed the arrival of a second global Australian media company this week, after the now US-domiciled News Corp.

The rampaging Macquarie Bank unveiled an initial public offer on Tuesday for Macquarie Media Group (MMG), an investment fund which will be managed by Macquarie with a remit to buy media assets in Australasia, North America, the UK, Europe and possibly Asia.

Macquarie Bank is on fire at present. Its share price has increased 60 per cent this year and doubled since October 2004 to around $75 through a near legendary knack of buying assets, repackaging and rebundling them into investment funds, and siphoning off hefty annual management and performance fees.

The new MMG offer is no different to what Macquarie has done with other infrastructure investments. Via its investment funds, Macquarie controls domestic and international airports, toll roads, television broadcast towers, property, utilities, aged-care facilities, and is currently making a bid for the London Stock Exchange.

The Macquarie model has delivered strong returns for investors and huge profits for the bank and its people. It's why Macquarie is known as the Millionaires Factory. Last year, for instance, Macquarie's chief executive, Allan Moss, pulled an $18.5 million salary package.

The basis of the new media group, which will float in November, is Macquarie's purchase last year of regional Australian radio assets from the British-controlled DMG and Australia's one-time TV game show and soapie king, the reclusive, now Bermuda based-billionaire, Reg Grundy.

Grundy's company produced shows such as Neighbors, Prisoner, Young Doctors and Wheel of Fortune but sold out to Pearson in 1995. Since then his investments have been managed by a market savvy accountant, Tim Hughes, who ran RG Radio before selling the company to Macquarie Bank 15 months ago.

Hughes becomes executive chairman of the new MMG fund and this week he flagged a broad agenda for the first major media player to emerge in Australia for at least a decade.

Locally, MMG media targets could include newspaper group John Fairfax, radio and TV group Southern Cross and metro radio broadcaster Austereo.

One analyst is tipping the fund's first acquisition will be Southern Cross Broadcasting.

The timing of the IPO will be just ahead of changes the Federal Government is expected to push through on media ownership regulations early next year.

Communications Minister Helen Coonan indicated last month the key legislative changes may allow media companies to own TV stations, two radio stations and a newspaper in a single city or market. Currently such ownership concentration is prohibited.

But Hughes this week played down specific acquisition plans MMG might have and said the float was not being driven by the expected changes to media ownership rules.

"I don't know what will happen with cross-media ownership in Australia," he told journalists on Thursday. "We have a global mandate. MMG does not depend on a change to the [Australian] media rules."

Equally, Hughes said the new group would not be a passive portfolio investor. "We won't be buying shares in News Corp, etc, even though they are great companies."

Indeed, Hughes said he wants to build MMG into an international, diversified media group like News Corp.

Macquarie Bank has proven time and again its ability to repackage assets and make them sing. By November we'll know if the Millionaires Factory has blemishes, courtesy of the media sector.

MMG will be a stapled security, comprising a share in Macquarie Media Holdings, which will control the media assets, and a unit in Macquarie Media Trust. Macquarie Bank will hold a 20 per cent share and will receive annual management fees in two streams, a base fee of 1.5 per cent per annum, and a performance fee equal to 20 per cent of any return above 6 per cent after CPI adjustments.

It's very clear the Australian banking barons want to try their hand at being international media moguls.

* Paul McIntyre is a Sydney journalist