Ten Network Collapse

Ten CEO Paul Anderson (right) with board member Andrew Robb

Investors have lost confidence in the Ten Network’s chances of surviving its latest debt disaster; its shares are now being priced on the basis there is a strong possibility the company will collapse in the very near future.

Indeed, if it can’t get a $250 million loan guaranteed by Bruce Gordon and Lachlan Murdoch this week, administrators could be appointed in the coming days.

Investors have turned their back on Ten ever since these latest results were released by the five remaining directors to the ASX on Thursday morning last week.

The stock dived from 44.5 cents to 36 cents on Thursday then fell a further 25% to just 27 cents on Friday. It opened slightly lower again at 26.2 cents today and hit a low of 25 cents before settling at 26.5 cents by 11am.

The Australian was silent on the Ten situation across three broadsheet pages of coverage in its weekly Media section today, but the AFR had comprehensive coverage including a front-page headline: “Murdoch’s choice: save or kill Ten”.

The AFR reported that the onerous 21st Century Fox and CBS content contracts are costing Ten’s shareholders more than $150 million a year and wriggling out of these would be a rationale for receivership.

This is a remarkable situation, something the ASX, ASIC, ACMA and the federal government should all be watching closely.

The ASX needs to ensure there is a fully informed market for investors, many of whom are vulnerable retail holders. Lazard is the only remaining institution with a meaningful percentage holding of 10%.

Surely there is a case for the ASX to query Ten and require detailed disclosure on the terms of these material contracts, even if the Hollywood production giants have confidentiality clauses written in.

The case for disclosure is particularly strong with Fox, given it is controlled by the Murdoch family, which is also a key player in deciding whether Ten goes under courtesy of any non-renewal of Lachlan Murdoch’s loan guarantee with the Commonwealth Bank.

The Australian Shareholders’ Association (ASA) entered the debate today calling on Ten to immediately appoint some new independent directors.

“Given the substantial conflicts of interest and potential related-party transactions at play, ASA believes Ten needs to immediately move to a conventional board with a majority of independent directors,” ASA director Allan Goldin told Crikey.

“For that to happen, Ten needs to quickly add two new independent directors so the independents have a majority and can out-vote all of the conflicted directors if necessary to ensure the interests of minority shareholders are protected and conflicts of interest are appropriately managed.”

The Ten directors have not been particularly visible since the AGM in December.

It was CEO Paul Anderson and CFO Dave Boorman (a former Seven West Media CFO) who fronted this 40-minute analyst call on Thursday. Interestingly, Ten is one of the few public companies that doesn’t have its CEO on the board. For this reason, independent chairman David Gordon probably should have fronted the analyst call and also been given more direct quotes in Thursday’s written results package.

As it stands, Anderson was quite upbeat in his investor presentation, but investors just don’t believe the company’s line that, to survive, all it needs is the $250 million loan guaranteed by some of its four billionaire major shareholders, cost cuts, revenue enhancements and reduced TV licence fees.

They know it needs the new loan just to survive, not to grow, as directors said on Thursday “to meet its repayment obligations under the existing (revolving credit facility with the Commonwealth Bank) Facility including associated capitalised interest and shareholder guarantor fees and other debts as and when they fall due …”.

Friday’s slump took the fall last week to more than 40%, which is not surprising when the auditor and directors go public in the accounts saying there is “a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business”.

The current share price tells us that the suggested $250 million loan will not be enough, that the company needs to be and recapitalised, with more equity pumped into the balance sheet. But who will write that cheque and how much would it dilute the existing shareholders?

Ten needs a stronger capital base to reassure customers and clients that it will remain in business and will be able to finance new content — especially the Big Bash cricket past the coming 2017-18 summer season. 

It would not surprise to see Foxtel become involved as a guaranteeing shareholder with its 13.8% stake. Foxtel invested $77 million in Ten back in mid-2015. That is now worth less than $14 million. Foxtel has already impaired that by close to $25 million and more will be on the way in next week’s March quarter announcement from News Corp because of the latest slide in Ten’s shares. The Commonwealth Bank is one of the major financiers of the Murdoch clan’s companies in Australia so it might be having its arm twisted to help Ten, as long as guarantors can be found. However, News Corp will have to get Telstra onside if any support is provided through Foxtel.

Foxtel itself is seeing a slowdown in revenue and is losing subscribers. So weak was the outlook that News Corp directors wrote down the value of their 50% stake in the pay TV monopoly by US$227 million in the December quarter, and warned there could be more to come if the outlook didn’t improve.

The next instalment in this saga will come on the News Corp conference call with investors next week. Stay tuned!

*Disclosure: Stephen Mayne is a director of the Australian Shareholders’ Association.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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