The Ten Network could fall into the hands of administrators as the troubled network was unable to give assurances today it would be able to finance a new $250 million loan. It needs the loan to keep solvent and trading as a going concern.
In a statement to the ASX just before trading was due to start at 10am today, Ten asked for a two-day trading halt, pending an announcement, confirming that two of its billionaire shareholders — Lachlan Murdoch and Bruce Gordon — had abandoned it by refusing to guarantee the new loan.
The abandonment is a death sentence. The duo decided that the hundreds of millions of dollars they and James Packer (the co-guarantor of the current loan) have lost in the collapse of the Ten share price from the high of $1.45 on October 10 to 16 cents on Friday (a plunge of 89%) was enough. With Packer, the trio have put at risk the $31 million of “guarantor fees” on the guarantees they provided for the $200 million revolving credit (with at least $66 million owed on it by late April) provided by the Commonwealth Bank and due for repayment on December 23. In its statement, Ten said it needed to reconsider its position without the guarantors extending or increasing their support:
“Ten’s board is considering the position of the company in light of the position being taken by (Murdoch and Gordon) and the range of restructuring and refinancing initiatives it has underway. Pending these determinations over the coming days, Ten considers that its shares will not be able to trade on an informed basis and, accordingly, requests the trading halt.”
The company said it expected the trading halt would end with an announcement from the board.
Murdoch and Gordon had been asked to guarantee the new loan, as they and James Packer had guaranteed the $200 million revolving credit from the Commonwealth Bank due for repayment in December.
Ten’s board will now assess reports from its advisers as to the possibility of a loan becoming available from other sources. Some in the markets have suggested a loan could come from so-called vulture funds which feed off broken or dying companies and charge usurious rates of interest. But there is a bigger interested party here — News Corp (which is co-chaired by Lachlan Murdoch). Ten’s board will now have to ask whether the company can continue as a going concern without the certainty of the $250 million loan, or whether it should ask for administrators to be appointed.
Advisers KordaMentha and Moelis were working for Ten, and Fort Street Advisers working with Murdoch and Gordon on the guarantee — involvement should end, or be wound back, now they have abandoned Ten.
Ten is facing a grim future. No matter what the board claims is the chance of a new loan being put in place, unless there is a rebound in the share price, directors will once again have to consider the value of the company’s remaining assets (especially the depreciated value of the TV licences at $132 million). At February 8, the end of the company’s first half, Ten shares were selling for 65 cents, down from about $1.26 at the end of the 2015-16 financial year on August 31. The shares were 44 cents on April 26, the day before the rotten first-half figures were released, which also disclosed a warning from directors about the company’s parlous financial state.
James Packer hasn’t been interested in Ten for months — he tried in vain to sell his 7.7% stake in March through UBS and found no takers. Murdoch has 7.7% (which he bought from Packer for $128.2 million). Packer paid $280 million for a 17.88% stake in Ten and sold half to Murdoch. Gina Rinehart, another big shareholder, paid $157 million for her 10%, which followed the first buy by James Packer. At Friday’s close of 16 cents, Ten was worth just under $58 million. The trio paid well over $430 million for a combined shareholding worth a little more than $16 million.
Gordon has a 14.9% stake much of which was bought years ago when Ten’s shares were worth $3 each or more. While he has bought shares at lower levels, his losses are huge and his stake was worth just $8.6 million. Foxtel, 50% owned by News Corp, paid 75 cents a share for its 13.8% stake which has been partially written down, but is now only worth $7.9 million.
Small shareholders should realise that the the message from the lack of interest from the five biggest shareholders — Murdoch, Gordon, Packer, Rinehart and Foxtel — is that they think Ten’s shares are worthless.
It is also recognition that if Ten goes into administration, there is only one buyer: News Corp. But that can only happen if the federal government’s media law changes are passed by Parliament. Under the new rules, the 75% reach and two-out-of-three rules would be abandoned, allowing News Corp to own the TV network as well as its current assets. At the moment there is no sign of the legislation in the Senate, despite lobbying by media bosses. The journalists’ union, the Media, Entertainment and Arts Alliance put out a statement shortly after the announcement discouraging any reduction in media diversity, and “urging” decision makers to avoid cutting jobs to turn the company around. But Ten’s desperate problems might see that change and the government deal with cross bench demands. Will Pauline Hanson try some brinkmanship by demanding funding cuts to the ABC as the price for her approval?