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Feb 17, 2017

Murdoch and Gordon prop up Ten, but will Packer abandon ship?

In the face of Ten's horror results, is James Packer going to jump off the sinking ship?

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What is the value of a TV licence? And does Ten have the financial capacity to absorb another big impairment of those licences? The network’s bean counters are now trying to work that out in the wake of yesterday’s surprise profit downgrade and forecast of a return to losses for the six months to February 28. If Ten can’t, it might have to raise more cash from shareholders.

The value of those licences has been a shrinking figure in recent years. In fact, asset write-downs are becoming so regular at Ten that it could be considered a normal cost of business, instead of being classified as a one-off item each year. In 2014-15 more than $251 million was carved off the value of its TV licences, and a further $135.1 million was chopped.

The value of the licences is now just $346 million, against an original cost (according to the 2015-16 annual report) of $1.077 billion, and the accumulated impairment tops $731 million (or well over 70%). The TV licences remain the biggest asset in the Ten balance sheet (as they do at its rivals, Seven and Nine). In fact, even at the written down value at August 31 last year, they exceeded the market value of Ten shares at yesterday’s close of $323 million, or 88 cents (8.8 cents before the 10-for-one consolidation last year).

But the real concern is the four year $200 million “revolving cash advance facility” (which is really a revolving credit, a bit like a credit card) from the Commonwealth Bank. That falls due late next February (at this stage). At August 31 last year, $65 million had been drawn down from that facility, with $14.7 million held in cash on the balance sheet. There was also capitalised interest and fees of $3.3 million. Taking all this into account, the net debt figure was $53.5 million, according to Ten’s report.

And there were also capitalised shareholder guarantor fees of $23.1 million. They relate to guarantees given to the Commonwealth Bank by companies associated with Bruce Gordon (the biggest shareholder), Lachlan Murdoch and James Packer. These fees and capitalised interest will have risen in the current six months. But the guarantor fees will have to be repaid, along with whatever debt is still on the cash card facility from the CBA — unless they can be rolled over.

Another write-down in the value of the TV licences and continuing trading losses won’t make the Commonwealth eager to extend the credit. Bruce Gordon and Lachlan Murdoch will extend their guarantees for corporate reasons (Gordon has to protect whatever value is left in Ten; otherwise he will face a huge, multimillion-dollar loss on his abortive investment). Lachlan Murdoch will extend his credit guarantee because Ten is now within the Murdoch clan’s orbit. Murdoch has around 8% of the shares, and Foxtel has nearly 14%, as well as control of Ten’s ad sales.

James Packer is the unknown. He has tried to sell his shares, but there is no knowledge of what he wants done with the guarantee fees he is already owed by Ten. At around $8 million or so, its not a large sum, but in Ten’s current position it is liquid gold and the cash would be better retained in the company. Perhaps it is a good thing that Packer has so far been unable to sell his shares. — Glenn Dyer

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