As Ten Network Holdings teeters, the mainstream media, particularly the Murdoch press, haven’t yet thoroughly explored a myriad of sensitive governance and conflict-of-interest issues arising from the dual roles of three billionaire substantial shareholders who double up as loan guarantors.

Debt and equity providers often have conflicting interests, and we’ve never had a public company work-out situation before where three substantial shareholders are also key financiers.

Lachlan Murdoch, James Packer and Bruce Gordon — who together control about one-third of Ten’s voting stock — are reportedly meeting next Thursday to decide whether to expand and roll over their existing $200 million loan guarantee to Ten’s senior lender, the Commonwealth Bank.

Interestingly, the current chair of the CBA audit committee is none other than Brian Long, a long-term associate of the Packer family who was also most accommodating as Ten’s former chairman in handing the reins to Lachlan Murdoch and his sidekick Siobhan McKenna a few years back.

After a disastrous stint at the helm, Lachlan Murdoch quit as Ten’s chairman in March 2014, and the statement at the time included the following commentary:

“On behalf of the board, I thank Lachlan for the contribution he has made during a very difficult time for the company. I am pleased that he will retain his commitment to TEN through continuing to hold his 8.8% shareholding in the company, together with the shareholder guarantee that his company has provided in respect of TEN’s new loan financing arrangements,” Brian Long, TEN’s deputy chairman and lead independent director said today.

That support no longer includes board representation because Siobhan McKenna quit the Ten board without any explanation last month, but the departure raised a range of issues. Was it because of a conflict of interest, associations between the various shareholders or ongoing and upcoming related-party transactions?

James Packer, Gina Rinehart and Lachlan Murdoch collectively spent $422 million buying a 28% stake in Ten back in 2010. They invested a further $140 million in three subsequent capital raisings, for a total outlay of about $562 million. That investment is today worth about $40 million.

Bermuda-based Bruce Gordon has spent closer to $400 million on his 14.9% stake and appears determined to double down again with an extension of his loan guarantee.

Even Foxtel has dropped most of the $77 million it spent in 2015 picking up a 13.8% stake in the company as it anchored a third emergency capital raising in the space of four years.

Together that is about $1 billion that has been collectively lost by four supposedly clever billionaires, plus Telstra, the weaker 50% partner on the Foxtel board, which now includes Siobhan McKenna representing News Corp.

Ever since James Packer triggered this whole mess with his disastrous $280 million share raid in October 2010, Ten has burnt through five CEOs or executive chairs and is now in a right quandary.

Packer himself is busily selling assets in his private empire and organising cash payouts from Crown Resorts after taking on huge debts buying out of his sister from the family empire for more than $1 billion.

The casino mogul must hate the fact that his 8% stake in Ten is now only worth a miserable $10 million, but he’s potentially on the hook for a $66.6 million loan guarantee if everything goes completely pear-shaped.

Under the law, Gordon, Packer and Murdoch are not allowed to act in concert because they together own more than 20% of Ten.

However, they are being forced to act together as they consider whether to roll over or extend their collective $200 million guarantee. The Australian reported today that Packer wants out but may be required to surrender his $10.3 million share of the $31 million in loan guarantee fees that the trio will be owed when the CBA loan expires on December 23 this year.

While the equity losses are hugely painful, so far the three guarantors have earned, but not received, $29 million in guarantor fees without actually seeing Ten’s loan from the Commonwealth Bank get anywhere near the $200 million limit. It is currently drawn to about $65 million.

Why wouldn’t Ten’s directors just max out the loan in order to pay creditors on time? A sure sign of insolvency is normally a blow out in current liabilities, and here is how Ten’s have tracked over the past six reporting periods:

  • Feb 28, 2017: $195.4 million
  • August 31, 2016: $152 million
  • February 29, 2016: $207.2 million
  • August 31, 2015: $203.7 million
  • February 28, 2015: $197.8 million
  • August 31, 2014: $154.4 million

The jump in the latest half partly reflects the upcoming repayment of the CBA facility, along with the loan guarantee fees.

As Ten’s board effectively begs the federal government to cut the 3.4% revenue share it takes in licence fees from Ten (currently running at about $23 million a year, according to Fairfax), it would be interesting to know whether Ten is keeping up with its periodic payments to the government and where any outstanding fees would rank in a receivership situation.

Given Australia’s long history of crony capitalism and rent-seeking by powerful billionaires in the media sector, a licence fee cut to benefit them now will be a sensitive call for the federal Parliament to make.

The Murdoch family have the most to lose through their quadruple exposure to the Ten implosion, namely Lachlan’s 9% equity stake, Foxtel’s 13.8% equity stake, Lachlan’s $66.6 million loan guarantee liability and the estimated $1 million a week that Ten is paying 21st Century Fox for programming, which Ten is now trying to wriggle out of.

There are related-party transactions and conflicts of interest all over the shop here.

Surely the federal government won’t take a licence fee haircut unless 21st Century Fox — where Lachlan Murdoch is co-chairman with his father Rupert — does the same to try and help save Ten.

After the departure of Siobhan McKenna, there are only five directors of Ten and three of them are associated with substantial shareholders, namely Foxtel CEO Peter Tonagh, Bruce Gordon’s chief lieutenant Andrew Lancaster and Gina Rinehart’s nominee Andrew Robb.

As a News Corp employee who reports to Lachlan Murdoch, Tonagh should arguably step aside from the Ten board for a more independent Foxtel nominee, such as someone from Telstra.

It would also be ideal to have two new genuinely independent directors appointed who can represent the remaining institutional shareholders and 17,000 retail shareholders who collectively still own about 47% of Ten and have lost over $1 billion since 2010.

Ten shares fell another 12% to a record low of 31 cents in morning trade, valuing the company at just $115 million. Oh dear. At that price, surely the likes of Fairfax Media and Southern Cross Media are kicking the tyres.

Maybe even the federal government should buy Ten and merge it with SBS creating a public-private hybrid similar to what happens in the UK with Channel 4 and Channel 5.

Whatever happens, Ten should not be allowed to fall completely into the hands of the Murdoch family. They already have way too much power in the Australian media, and a shoddy record to boot.

Peter Fray

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