Here’s the death knell for those vain attempts to interest someone in buying the Nine Entertainment Co and its Nine Network from struggling private equity group CVC. This morning Brambles, the logistics giant, canned the $US1.8-2 billion sale of its Recall data and document management business because of the worsening state of global markets and a lack of any real buyers.
“Amid challenging capital markets conditions, and following complex negotiations, offers from bidders for Recall did not reflect its value or offer sufficient certainty,” chairman Graham Kraehe said in a statement today. “Therefore, the board concluded that it is in the best interests of Brambles shareholders to retain Recall, which is a profitable and growing business.”
The Recall sale has been going on for months as Brambles has sought to get interested parties to the finishing line. But the worsening outlook for markets has seen the deal collapse. Apart from a trade sale to a rival, the other possible buyers for Recall would have included groups in the sale list of likely prospects for Nine; hedge funds and private equity groups. The other concern would have been getting banks to finance the buy. A big concern for Nine was that with many local banks, having sold their Nine debt for a small loss to aggressive hedge funds Oaktree and Apollo, they would not be interested in lending any new money for another buyout.
Recall had been a straightforward asset sale: it is very profitable, has good business prospects and is a major player in its sector. That this sale couldn’t happen tells us that the private equity and hedge funds who might have risked such a buy when more mainstream companies had shied away, are no longer interested in spending because of the worsening market conditions. The decision has forced Brambles into approaching shareholders in a big fund-raising, the details of which will be revealed later today.
The Recall news confirms the growing flood of IPO cancellations, especially in Asia. Last week the owners of the formula one business (which include CVC) postponed the $US2.5 billion float of the business in Singapore only hours after the $US1 billion float of the Graff luxury diamond business was pulled from the Hong Kong market. About a dozen other IPOs in Asia, the UK and US have also been sent to the sidelines to wait out the worsening market conditions being driven by fears about the eurozone and the slowing Chinese economy.
For weeks now CVC and its ally Goldman Sachs have been leaking juicy details of potential buying interest in Nine as they try and get some sort of beauty parade or auction going. Local prospects such as Telstra and Seven Group Holdings have been trotted out for a day or so, and then put back in the box amid denials. US investors and media buyers have been mentioned, such as Harry Sloan, a former head of MGM, the big US networks have been visited, just as they were 20 years ago when Nine was last on the verge of collapse after the ill-fated Bond Media excursion. That failed and Nine slid into receivership and Kerry Packer bought it back in the 1991-92 recession for a bargain price.
Markets have changed markedly since then, the internet and new media are taking value, other analogue media are dying (newspapers and magazines), removing one possible source of new owners and the big international investors these days are hedge funds and private equity groups. Apollo and Oaktree control much of Nine’s debt and are in the box seat to take control after February next year, if a sale and recapitalisation can’t take place.
Media interviews with Nine Entertainment boss David Gyngell and Nine Network head Jeff Brown have spruiked the business’ strengths, while glossing over the $2.8 billion debt mountain that has to be removed or refinanced. But some reports have said that CVC is realistic enough to want prospective buyers to come full financed and not just kick the tyres on the off chance of getting some funding and a some bit of equity (CVC has $1.9 billion of equity that is all but sunk in Nine). Gyngell and the auditors have to sign off on the 2011-12 accounts in September, which is looming as a critical time.
The one to watch is Apollo, which is repeating in Nine similar moves in the debt of Endemol, the owners of The Voice and Big Brother. Apollo is converting debt in Endemol to equity to try and take control from the current owners, Mediaset (Silvio Berlusconi’s company), John de Mol, the founder and Goldman Sachs’ private equity funds. The same funds have nearly $1 billion invested in Nine and Goldman Sachs is co-operating with CVC in trying to find a buyer or buyers.
And last week, the Moody’s rating group said there was a very good chance the present crisis could see a spate of highly indebted companies collapse over the next three years.
“Moody’s Investors Service has warned that at least a quarter of 254 unrated European leveraged buyout deals with debts worth €133 billion could default owing to refinancing burdens in part caused by the eurozone crisis. Over half the debt maturing through 2015 is concentrated in 36 companies, each of which has over €1 billion of debt,” said Chetan Modi, head of Moody’s European leveraged finance.
“While this debt is broadly dispersed across industries, there is a concentration of debt to be refinanced in 2014. And these companies are now one year closer to the 2014-2015 refinancing peak, which is worrisome given the weak macroeconomic environment and generally low credit quality of the debt. Many bigger companies will seek to refinance via high-yield bonds, but will need to be ‘sufficiently creditworthy’ to do this, and the openness of European and US high-yield markets will determine how these companies can navigate the refinancing burden. Moody’s said market access will likely remain in “windows,” and it expects new-issuer pricing to remain costly.”