The Ten Network has blinked and gone to market to raise up to $200 million from shareholders, with some 43% of that already guaranteed with Gina Rinehart, Bruce Gordon, James Packer and Lachlan Murdoch (chairman) supporting the surprise issue. The surprise nature of the announcement was underlined by the issue price of 51 cents, a 20% discount to the market price and a 15% discount to the price Ten shares would be expected to trade at after the issue. Because of this discount and the fact that media stocks are on the nose with small investors, the four major shareholders could very well end up owning more than 50% of Ten between them after the issue.

It is a risky issue, even with the support of the four big shareholders. But there’s an element of a pre-emptive strike as rival Nine struggles to be sold by owners CVC, Fairfax’s shares slide to new lows and other media groups are weak. Only Seven is in a stronger position being part of Seven West Media and having stronger earnings and cash flows.

Ten made it clear in its presentation that not only will the money help ease a looming debt crunch next year, but some of the money will be spent on new programming in-house, rather than paying outside production companies. Ten has recently started a creative development group and done a deal with an audience research group to reduce “executive risk” (that is, ratings flops). It told investors today that costs would rise in the next year as the work of these groups stepped up. That is a risk in the current nervous climate and with investors worried about cost growth running ahead of weak or falling revenue growth.

Seeing all four big shareholders bought into Ten at prices well above $1 a share (and Gordon’s shares cost well over $2 a share, adjusted for the 2009 raising), Rinehart, Packer and Murdoch are facing big losses on their Ten holdings. All four are, in effect, averaging down the cost of their holdings by investing in the new issue.

While Ten says it is in advanced talks with one party about selling its Eye Corp outdoor advertising business, there’s no guarantee of that happening and the company needs cash to finance its investment in new programming and to redeem the $US125 million (swapped into $A10 million) debt that falls due in March 2013. — Glenn Dyer

Peter Fray

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