The 750 employees of Ten Network Holdings potentially hold the key to approving any transaction involving Lachlan Murdoch and Bruce Gordon attempting to seize control of Australia’s third biggest free-to-air television network.
Led by veteran reporter Hugh Riminton, the staff yesterday secured three of the 14 positions on the all-powerful Ten creditors’ committee, which will need to approve any proposed capital reconstruction.
The creditors’ committee is larger than normal, but given the conflicts of interest, related-party transactions and political sensitivities, administrators KordaMentha did not try to limit its size. Everyone who put their hand up during the 45-minute meeting at The Sydney Sofitel secured a seat.
This means that Bruce Gordon is only one vote out of 14. The Murdoch interests, however, control three votes through Lachlan Murdoch’s role as a joint guarantor of the $200 million loan from the Commonwealth Bank, the seat secured by 21st Century Fox and the additional spot taken by production house Endemol Shine, which is 50% owned by Fox.
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James Packer has already dropped about $200 million on Ten but has no interest in taking control of the business. However, he does want to protect his maximum additional exposure of $76 million, which reflects his one-third share of the $200 million loan guarantee, plus the $10 million in guarantee fees he will be owed when the CBA loan falls due in December this year. That’s why he put his hand up for a seat on the creditors’ committee yesterday and has also agreed to release further funds from the CBA facility later this week to see Ten through a cash crunch.
While having three votes on the creditors’ committee is important, the real power for Ten’s employees comes from the requirement that any recapitalisation proposal must be approved by a majority of creditors by value and a majority by number.
Courtesy of the control they exercise through the CBA loan, the three guarantors, if united in purpose, are effectively the largest creditor and the only secured creditor. The loan was drawn to $97 million as of yesterday, but a further unspecified lump sum will be made available by the triumvirate later this week.
If the employees act in a co-ordinated manner, they effectively have a veto over any vote at a subsequent creditors’ meeting because there are potentially 750 of them, making them easily more numerous than all other creditors combined (190 employees had signed up as creditors before yesterday’s meeting and the other 560 of them should do likewise promptly).
The employees are in a unique position because they potentially face dramatically different scenarios, depending on whether the Murdoch interests can wangle control of Ten.
Were that to happen, a likely merger with Sky News would be on the cards, leading to substantial journalistic job losses.
This means the staff have a real incentive for Ten to be sold to a third party, independent of the current media players, who would maintain its business as a stand-alone operation, including a full comprehensive news service.
Administrator Mark Korda mentioned yesterday that advertisers also want to retain three viable free-to-air networks, so this means the likes of Coles and Woolies are effectively aligned with those wanting Ten to survive in its current form, not be subsumed by Foxtel, News Corp or Lachlan Murdoch personally.
Ten’s 17,000 small shareholders are also hoping for a strong competitive auction from a range of bidders, which would drive the sale price higher and potentially generate some form of shareholder return.
Shareholders and media were banned from yesterday’s meeting, but once the creditors’ committee had been appointed and the press conference completed, administrators Mark Korda and Jennifer Nettleton agreed to meet with the Australian Shareholders’ Association CEO Judith Fox and me for 45 minutes at Chifley Tower. We received a fair hearing.
We were disappointed to hear Korda tell the press that his preliminary assessment was that all shareholder value had been wiped out.
How would you know until a full competitive auction of the assets had been conducted?
If Ten can materially reduce the liability of those two onerous contracts with CBS and 21st Century Fox, why wouldn’t you ink those deals, wait for the federal Parliament to slash the annual licence fees and then trumpet these savings as part of competitive auction run by a professional investment bank such as Macquarie?
We put this position strongly to KordaMentha yesterday. What’s the rush here? Bruce Gordon and Lachlan Murdoch might want a rapid-fire auction to seize control on the cheap but that is not in the interests of shareholders or unsecured creditors, including the likes of CBS.
This may be all academic because KordaMentha is reportedly set to be supplanted by rival corporate undertaker PPB Advisory, which has former ASIC chairman Tony D’Aloisio on its board.
If you read Terry McCrann’s column today, this will all be the work of the Commonwealth Bank, which has long had a special relationship with the Murdoch family in Australia.
Truth be known, it is the three billionaire guarantors who are calling the shots. The price for extending extra finance this week is likely to be the appointment of a PPB Advisory receiver, who has a stronger focus on secured creditors, as opposed to unsecured creditors or shareholders, who rank a long last under Australia’s stringent bankruptcy laws.
However, the receiver also has a legal obligation under section 420A of the Corporations Act to maximise the sale price, which points to an orderly auction being the way to go.
Seeing as it is currently against the law for either Bruce Gordon or Lachlan Murdoch to control Ten, whoever they appoint as receiver will need to quickly assert their independence, particularly given the huge related-party transactions and conflicts of interest at play.
The key power the trio have is to only extend a small amount of finance, such that the receiver has no option but to pursue a quick sale, which wouldn’t allow time for rival bidders to get their act together, let alone negotiate with CBS and the conflicted 21st Century Fox to confirm proposed cut to their overpriced supply deals.
All up, it’s an extraordinary situation and while shareholders were not allowed into yesterday’s meeting or onto the creditors’ committee, at least ASIC chose to send a representative to observe.
Both the ASX and the federal government are Ten creditors through listing fees and taxes owed, so it was disappointing neither party chose to join the creditors’ committee to ensure that proper corporate governance is observed over the coming weeks.
There is a long history of bastardry in the Australian media — witness the scandalous attack on Ten chairman David Gordon in The Australian yesterday — and it is at times like these we need a range of players to step up and keep the bastards honest.
*Stephen Mayne is a director of the Australian Shareholders’ Association.