In the four months up to its collapse in mid-June, the Ten Network suffered a multimillion-dollar shortfall in revenue and was losing $5 million a month as directors struggled to keep the company solvent and in business, while being increasingly harassed by shareholders Lachlan Murdoch and Bruce Gordon. James Packer had bolted from the trio guaranteeing Ten’s key financing vehicle, the $200 million revolving credit due on December 23. The share price plunged from 95 cents in mid-January to just 16 cents in the days before it was forced into administration by threats of legal action against the then-board from Messrs Gordon and Murdoch.

All in all, a second report to creditors from Ten’s administrator KordaMentha paints a picture of a company desperately trying to stay alive, without any help whatsoever from two key shareholders — who now want to gazump CBS and take over over Ten using little if any of their own money.

CBS has paid off all the main secured debts with more than $200 million of payments to the Commonwealth Bank, James Packer, Lachlan Murdoch and Bruce Gordon, and it is clear that Murdoch and Gordon do not plan to use much of their own money to buy control of the network — if legal action by Gordon succeeds in overturning the administrators’ decision to sell the network to CBS.

In fact the detail in the second creditors report makes clear that Murdoch and Gordon face a near impossible task to wrest control of the Ten network back from US media giant, CBS, despite the strong attempts by Murdoch-owned newspapers to make us believe that this will happen. To do so will force them to put up more than $200 million.

That second report contains a number of home truths for Murdoch and Gordon, and a huge challenge for the New South Wales Supreme Court where a hearing resumes today in Sydney Gordon’s bid to stop or delay the sale to CBS. The report from the administrators makes clear the sale has happened and for all intents and purposes, Ten is now surviving because of a $200 million-plus support package from the US company.

Ten is now solvent and its future assured after CBS injected over $200 million to become one of the major secured creditors. According to the new KordaMentha report, the cash value from CBS includes $139.1 million to repay secured creditors including the Commonwealth Bank (including more than $30 million paid to Murdoch, Gordon and James Packer to guarantee a $200 million revolving credit from the Commonwealth Bank), $32 million for the creditors’ trust fund and $30 million in working capital. Of that $30 million, the report says $3.6 million has already been used by Ten to keep itself in business.

That will be an impossible situation for the judge. The judge, if he decided in favour of Gordon, will have to unscramble the proverbial egg: force the Commonwealth Bank to give up money it been repaid, force Murdoch, Gordon and James Packer to return around $11 million each for the guarantee they gave for the CBA loan, get those companies that have received funds from the working capital (including employees) to repay the money. Or Gordon and Murdoch will have to replace CBS’ funds with money of their own.

If CBS’ support is withdrawn and Murdoch and Gordon do not put up their own capital to support the company, Ten’s already rising losses will soar as advertisers become more reluctant to place ads with the network and viewers stop watching.

[Conflicts of interest abound in the story behind Ten’s collapse]

CBS is also now a major secured creditor and, at any meeting of creditors to vote on the sale, will dominate the value part of the voting (the other is the number of creditors where Ten staff dominate and won’t want to vote for Gordon and Murdoch who plan to sack many and bring in Murdoch-affiliated companies like Sky News and Fox Sports).

Ten’s financial performance clearly worsened from the start of its second half on March 1 to when it went into administration in mid-June. The administrators report said:

“During the four months to June 2017, an EBITDA loss of $1.6 million was incurred. In July 2017, the Federal Government announced the abolition of television license fees for FY17, which had already been accrued in Ten Group’s accounts. The abolition of the fees gave rise to a write back of $18.6 million … Without this cost reduction, the EBITDA loss for the four-month period would have been $20.1 million.”

The $20.1 million loss ($5 million a month, or more than $60million for a full year) compares to a budgeted loss by management of $1.2 million. The report that while management had budged for revenue of $240 million in the four months, it fell short by a total of $28 million to $212.5 million, hence the soaring losses. That is despite a sharp rise in June and a profit as ad clients settled their bills at the end of the quarter.

You have to wonder about the seriousness of Murdoch and Gordon — while they monstered Ten into administration in June, they could not make the late August deadline for bids set by the administrators. The report says there were further complications with the joint bid, including its timing — the CBS deal can be completed by early next month (October), while the joint bid would take until late November. The court case could further delay the bid and the eventual decision.

“Although dated 24 August 2017, the B&I Transaction was submitted on 25 August, 2017 at approximately 8.30am and was expressed to be open until 25 August, 2017 at 5pm, unless extended by Birketu and Illyria, after which time it lapsed,” KordaMentha’s supplementary report notes. “No extension was requested or otherwise provided to the administrators or receivers.” So were they serious?

And finally there’s the cheek of the joint bid relying on the Commonwealth Bank renewing the $200 million revolving credit facility to Ten that was originally guaranteed by Murdoch, Gordon and Packer’s private companies. The new facility will be guaranteed by Gordon’s company Birketu and Illyria, which is Murdoch’s private company. (Packer’s Consolidated Press Holdings had agreed to take a cash payment upon being released from his guarantee.). This arrangement is a repeat of the situation that contributed to Ten’s slow fall into administration in June and allows the two to profit from Ten without risking any of their own money.

In fact, while CBS has put up over $200 million of its own money, Murdoch and Gordon propose to use very little of their own money and rely on the CBA loan as the main part of their bid’s financing, and to be paid by Ten, which is astounding. When bidders won’t use their own money, you have to wonder why. They either can’t afford the capital, don’t want to risk it in what is a high-risk venture (for them but not for CBS) or they just don’t think Ten is worth the possible pain.

Peter Fray

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