Over the past two months, several business heavyweights have bought substantial positions in Ten Network Holdings (TEN). James Packer’s private investment company, Consolidated Press Holdings, owns 18% of TEN, and approximately half this stake has been onsold to Lachlan Murdoch’s private entity, Illyria Holdings. Both have now joined TEN’s board and, in a strange twist, iron ore billionaire Gina Rinehart has also snared 10% of the broadcaster’s share register. To round things out, WIN TV’s Bruce Gordon has also increased his stake in TEN from 13% to 14%.

There are several theories about why these sharemarket moves have taken place, although most gravitate towards either the financial (i.e. there is money to be made in a TEN revival), or the political (i.e. Packer and Rinehart wish to influence governments, which might seek to impose new regulations and/or taxes on their respective gambling and mining empires). While I think there is some truth behind the latter theory, the presence of Lachlan Murdoch on the TEN board now suggests that the company may enjoy a profitable future as a media conglomerate rather than just a free-to-air TV broadcaster.

Packer and Murdoch control substantial media assets via different companies. Packer owns almost half of the listed Consolidated Media Holdings (CMJ), which in turn owns 25% of pay-TV group Foxtel and 50% of Fox Sports. Due to recent on-market buybacks, the combined ownership of CMJ by Packer and Kerry Stokes means that keeping the company listed will soon cease to make sense. When CMJ is removed from the bourse, it’s not beyond the realms of possibility that Packer (and Stokes) might look to vend its pay-TV assets into TEN in return for a larger stake in the free-to-air group. Imagine what the power a combined TEN/Foxtel group could bring to negotiations with the likes of the AFL and NRL.

Another possibility is that Murdoch looks to move his half share of the DMG radio network in Australia (i.e. the Nova and formerly Vega now Classic Rock stations) into TEN. TV and radio have rarely worked together in this country, yet there’s no reason why a well run sales and marketing division couldn’t handle sales for both formats. Eventually Murdoch will want to monetise his private stake in DMG Australia, and TEN might be the perfect vehicle with which to do it.

Complicating any of these potential moves are two things: First, the problems Fairfax has experienced trying to successfully assemble a media conglomerate of newspapers, online and radio might weigh heavily on the minds of TEN’s independent directors. And second, ACCC head Graeme Samuel will not give the green light any further media consolidation in Australia without first engaging in a thorough investigation of its potential effects on consumers.

Still, I think a “big picture” plan is brewing at the TEN board table. Given the ACCC complications of merging Foxtel with TEN, a more likely outcome is that Murdoch vends Illyria’s radio assets into the TV broadcaster, which then buys the other 50% of DMG Australia from its UK parent. TEN would then have a youth-focused TV and radio business with enormous cross-promotional opportunities between its various presenters from both broadcast formats. The remaining piece of the puzzle would be to build a larger online presence, something that represents a challenge, of course, for all more traditional media businesses.

Depending on the relative valuations of DMG and TEN, Murdoch and Packer will expect (and probably achieve) a combined stake in the merged entity of about 30%-40% — which coincidentally is what the Packer family used to have own in PBL, what the Murdoch family still has in Newscorp and what James Packer still controls in Crown. Such a large minority stake allows its owner to effectively control the company while maintaining enough sharemarket liquidity to encourage institutional ownership of the stock.

Thanks to a sharemarket that is focused, as always, on the short term, the network’s share price has hardly moved since the raids by Packer and Rinehart. None of the parties mentioned has bought their stakes in order to lose money, and the collective media expertise that has been added to TEN’s ranks means that the company could look quite different, and substantially more diverse, within a year.

Smaller investors rarely get a chance to buy in alongside the big boys; perhaps TEN as it is now represents a rare opportunity to do so.

Peter Fray

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