Nine Entertainment Co owners CVC Pacific and Goldman Sachs lost big in yesterday's deal to prevent Channel Nine going under. After two days at the negotiating table, the iconic broadcaster and media conglomerate has staved off filing for bankruptcy to put itself in a better position than it has been in years and in a much better position than its competitors, media analysts have said.
In an incredible deal brokered between station boss David Gyngell and the cabal of investment firms, Nine Entertainment was saved from proverbial oblivion. The debt obligations owed to foreign investment firms and hedge funds had Nine on the brink of bankruptcy. The hedge funds are the owners. But Nine is now debt free and full of life, a position that media analyst Peter Cox believes puts it in a much stronger position than any other network.
"The real winners are Nine management," Cox told Crikey
. Not only has Nine held onto its big sporting contracts and stars, it's also won the main demographic of 18 to 49-year-olds for 2012 which will allow it to get a bigger share of next year's advertising dollars. "A revitalised Nine puts a lot of pressure on Ten and especially Seven," Cox said.
According to media commentator Steve Allen, the new ownership structure is likely to run the channel in the same way as the previous owners, the CVC investment firm. But to their benefit. "Given [Nine] is debt free they won’t have to ride the same wave," he said.
In the "debt/equity swap" that was hashed out, Goldman Sachs and the two hedge funds swap Nine's debt obligation for an equitable stake in the company. US hedge funds Apollo Management and Oaktree Capital had $2.3 billion; a group headed by Goldman had the other $1 billion. Apollo and Oaktree now own 95.5% of Nine, Goldman the rest. The debt that Nine owed to these groups was swapped for equity in the channel itself. It's basically the same thing that would happen if you couldn't pay back the pawn shop.
Having invested $1 billion in the channel, Goldman wanted close to a third of the equity pie. At the conclusion of the two-day meeting it left with only $100 million in Nine, a "shitty deal" in the Goldman Sachs vernacular
. Goldman lost out because the bond holders couldn't be convinced Nine was worth more than $2.2 billion.
But the real losers are CVC, walking away with nothing other than a "massive whole in their pocket", according to Allen. He says CVC has been looking to jettison its stake in Nine Entertainment for some time, with a "significant amount of trading in the past few years, all at a discount". There was never going to be a better outcome.
"They knew," Allen said. "That's why [CVC Pacific managing partner Adrian] McKenzie resigned. They knew the game was up ... they rolled the dice."
When CVC took over Nine from James Packer in 2007 it paid $1.5 billion to Packer and $3.6 billion for the network's debts. The investment was a gamble in an interesting time of change for Australian television. It went bad within the first 12 months.
On screen, Nine has produced plenty of hits in 2012. But all that glittered wasn't gold. Behind the scenes company finances were a complete mess and creditors were expecting their returns at the start of 2013 for the $3.3 billion of debt the station owed. October was the month Nine's books would be opened to see if there were enough pennies to pay. There weren't.
CVC took what many saw as a gamble when it bought from Packer. Yesterday they finally lost.