The Ten Network, the country’s third commercial TV network, is in growing danger of collapse — so the stockmarket says as the company’s shares continue to hit a succession of new all-time lows in the past week as the release of the company’s half-year report draws closer.
Next Thursday Ten will release half-year results that could very well determine the company’s future and whether it will maintain its presence in the Australian media in its current form. The market dogs are barking that the report is going to be bad and that the future of country’s third free-to-air TV network is very much up in the air. In fact, the tanking share price is saying the company is not worth not very much at all. Ten shares fell to 49 cents yesterday, a new low (that’s 4.9 cents each before last year’s one-for-10 share consolidation).
At that level investors are saying that not only is Ten going to announce a loss and a big impairment of the value of the TV licences, but there’s also doubt the company can satisfactorily meet its debts. The $200 million revolving credit provided by the Commonwealth Bank (drawn down to the extent of at least $98 million at the end of the network’s 2015-16 financial year on August 30) is due to expire on December 23, and investors are looking for some sort of confidence-building statement from Ten and proof that any monies owning on that credit can be repaid.
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If Ten fails to reassure investors that it can deal with the loan, doubt will grow that the company can survive in its current form. At yesterday’s close, the company was worth $177 million against a book value of $382 million at August 31, 2016. That indicates an impairment of more than $200 million. The only asset of any size is $346 million of intangibles (mostly the value of the TV licences). That doesn’t leave very much leeway for any further problems and would be dependent on the resolution (or clarification) of the CBA credit and the monies owed on it.
Ten shares fell by almost 3% yesterday, but they are down 45% since the 2017 peak on February 15, the day before the network released a shock statement downgrading earnings for the February half-year and for the year to August. In fact, the shares have slumped by 66% since the 52-week high of $1.47 hit last October. The market is telling us the country’s third TV network might not survive much longer in its present form — and perhaps in any form.
That won’t be good news for big shareholders Lachlan Murdoch, Gina Rinehart, James Packer and Bruce Gordon. All might be wealthy, but a loss is a loss. James Packer is busy restructuring his businesses (he quit Hollywood this week) and has tried to sell his Ten stake without success. Murdoch doesn’t even want a board place filled by his representative to be filled by a replacement for the time being.
If the company cannot provide convincing evidence that the CBA revolving credit and the money owed under it will be repaid, then the bank will look to the trio of guarantors for the loan –Murdoch, Packer and Gordon — for satisfaction. They are currently owed guarantor fees of around $25 million, which are convertible into Ten shares if Ten can’t repay them. That seems not very likely, so in that event (and will ASIC and ACMA, the media regulator allow Bruce Gordon to lift his stake in ten past 15% when he already controls 14.9% of Nine Entertainment?) CBA might have to declare the loan arrangement impaired, which could place further pressure on Ten. CBA is also a major bank for News Corp Australia, Fox Sports Australia, Sky News and Foxtel as well as Ten, so any decision on the loan will ripple through the local arms of the Murdoch empire.
At the same time Foxtel, 50% owned by News Corp, might have to further impair the value of its shareholding in Ten (currently around 14%). The December quarter report from News Corp revealed that as at December 31, Foxtel was carrying “$22 million in losses associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings”. Telstra, which owns 50% of Foxtel, must be over the moon about the money wasted on the Ten play, a deal that was driven by News Corp Australia.
That means Foxtel will probably have to further impair the value of its Ten stake after any loss or write-down next week. Ten’s write-downs last year were driven by the shares falling to 92.50 cents at the end of 2016. The fall to 57 cents at the end of the March quarter (and the further dip to 49 cents yesterday) will place more pressure on Foxtel (and on News Corp) for further write-downs.
Of continuing interest is the statement from Ten in March announcing the surprise resignation of director Siobhan McKenna, Lachlan Murdoch’s representative on the board. Murdoch’s name wasn’t mentioned in the Ten statement, which finished: “TEN understands that, for the time being, Ms McKenna’s nominating shareholder Illyria (Lachlan Murdoch’s investment company) does not propose to nominate a replacement on the Board of TEN.”
McKenna is now the head of broadcast at News Corp Australia (one of the Murdoch family companies), where she oversees Foxtel (50%), Fox Sports Australia (100% owned) and Sky News (100%). But not Ten, although she will be informed of any write-down by Foxtel. But the decision not to replace her raises the question: why now? Was it a judgement by Lachlan Murdoch that Ten’s financial problem is precarious and there is a danger that it could be seen trading when insolvent? Was it that there was no one else at Illyria to appoint to Ten, or was it a conscious decision to cut all ties to Ten, where Murdoch owns nearly 9% (and is wearing a multimillion-dollar loss as well)?
What happens if Ten gets deeper into the mire? Can it sell off its licence, give it back and what happens if it goes into administration? Ten and Nine have already been there in the past, and there’s nothing much new in that. If Ten is sold, can it be sold to a foreigner, as it was to Canwest, the Canadian company controlled by the Asper family that eventually went bust? What about being bought by Ten or Foxtel (so long as Telstra approves)?
Seven and Nine would love to see Ten go bust completely because that would mean the $600 million in annual revenue would be available to them, plus Foxtel, and to a lesser extent SBS. But the print and outdoor and radio industries would also love to get their hands on the Ten revenue. Ten and the other commercial networks look like they will get licence fee relief in the May budget, but that is only worth an estimated $33 million for Ten, not nearly enough to save the company’s finances from serious damage.