The increasingly desperate Ten Network this morning revealed just how broke it is by proposing to sell a major 14.9% stake to the News Corp-controlled Foxtel at a 43.3% discount to the company’s last share price on Friday. Ten shares rose 6% on Friday to 26.5 cents — the highest they have been since last November — and yet the board this morning announced a placement with Foxtel at 15 cents a share (instead of the previous rumoured 18 cents a share) to raise up $77 million. The board also revealed an issue to other shareholders at the same price. Both issues will raise up to $154 million, when an issue at 20 cents a share would have raised $51 million more.
Even though the independent directors agreed to the latest deal, it is in effect a related-party transaction. The company is chaired by a close associate of the Murdochs in Hamish McLennan, who is also chair of REA Group, the most important company controlled by News Corp (but he seems to be about to depart). As well, former Ten chairman Lachlan Murdoch owns a near 9% stake in Ten.
And this morning’s statement reveals some important changes to Ten’s board. To start with, Foxtel will appoint a director to the Ten board, which will be shrunk to six people, as this morning’s statement explained:
“A representative of Foxtel will be appointed to the Board of TEN following completion of the Placement. It is also intended that the TEN Board will be reduced in size to six directors from that time, comprising two independent directors (one of whom will be Chairman), one representative of Foxtel and three representatives of existing major shareholders. Further details will be disclosed during the transaction process.”
This means Ten will be controlled by News (again without a takeover) because McLennan is a News Corp associate, the Foxtel representative will be a News associate, and the representative of Lachlan Murdoch’s investment company will have a seat as well — meaning three of the six will dominate proceedings. But if the chairman is to be independent, McLennan must be going and a new chair will be found. Even so, Foxtel and Lachlan Murdoch will still control two of the six votes on the board — and James Packer will vote with Lachie Murdoch.
And Ten will take a 24.99% stake in MCN, the advertising arm of Foxtel (50% owned by News) and Fox Sports (100% owned by News). MCN will become Ten’s ad-sales vehicle, meaning further control of the network through its lifeblood, ad revenues. This opens up an enormous conflict of interest between Foxtel/Fox Sports and Ten and News about who gets what advertising and at what rates — there will be few checks and balances to make sure the majority of non-News related shareholders in Ten aren’t losing out.
Foxtel claimed the MCN deal “is expected to provide Ten with synergies and improved access to advertisers”. That’s the usual self-justifying collection of crock. Ten’s sales team is easily the match of MCN’s — what this will do is give MCN access to the sales data and other closely held information a free-to-air network uses to sell to advertisers. It is a boost for MCN and invites it into the free-to-air camp. There was no word on what Ten would pay for the dubious benefit of buying a 24.99% stake in MCN, which doesn’t publish ad revenue and earnings details and is something of a black hole in media terms. It is a deal of dubious benefit to Ten and a lot of benefit for Foxtel and Fox Sports.
Ten will also get a two-year option to buy a 10% stake in Presto, the streaming joint venture between Foxtel and Seven Network — that’s a deal that has dragged Kerry Stokes firmly into the Murdoch camp in the Australian media. Ten will pay a reported $5 million for the “benefit”, which ties the network a little more closely to News/Foxtel and its bitter free-to-air rival.
A curious condition of the Foxtel deal is that other shareholders will have to subscribe a minimum of $68.5 million for the overall deal to happen. That offer will be supported by Lachlan Murdoch, Gina Rinehart and James Packer, according to this morning’s statement. But no word about the 14.9% shareholder Bruce Gordon and if he will subscribe. If Gordon maintains his opposition, he could sink the deal by not putting money in. But now the three other billionaires are supporting it with money, he will have to follow suit to maintain his stake.
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The deals are dependent on regulatory approval, especially the Australian Competition and Consumer Commission. No doubt Ten and Foxtel will argue that Ten has to be “rescued”’ via bargain-basement refinancing; otherwise its future is bleak. That is certainly true, but News Corp should be forced to make a bid for the entire company, in exchange for selling off its stake in either Foxtel or Fox Sports, or not proceeding with the takeover of Sky News.