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Tips and rumours

Jun 26, 2017

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From the Crikey grapevine, the latest tips and rumours …

Where has Our Gina gone wrong? Mining magnate Gina Rinehart has had a rough time of it recently. Her near $200 million stake in the Ten Network is practically worthless, and according to media reports, Rinehart’s $13 billion Roy Hill iron ore mine in Western Australia (she owns 70%) is still suffering teething problems. It is still to reach its rated production rate of 55 million tonnes a year, despite and promises in late 2016 that this figure would be hit early 2017. The mine started in February 2016. Roy Hill CEO Barry Fitzgerald said late last year: “But we will certainly achieve a 55 million tonnes annualised rate early in the New Year.” We’re yet to see it. 

A Chinese mining seminar was told on Thursday that Roy Hill was expecting to ship 16 million tonnes of iron ore in the six months to this Friday. Sales director Cao Chengjie blamed “unexpected difficulties encountered during production” for the failure to meet expectations at an industry conference in the Chinese city of Zhengzhou on Thursday, according to the Metal Bulletin. That target might have been disclosed to the Chinese iron ore buyers and steel mills, but it hasn’t been made public in Australia.

Penalising employees does not help employment. You’d be aware of the terrible burden that Australia’s hospitality sector is labouring under with penalty rates, that massive burden on the sector that prevents them from employing more people? Some relief is on the way, of course — the Fair Work Commission in its wisdom decided to cut Sunday and public holiday penalty rates for workers in the hospitality and retail sectors. And not a moment too soon — the hospitality sector is critically endangered. In detailed employment data released by the Australian Bureau of Statistics last week for the May quarter, employment in the food and beverage sub-sector plunged to 777,000 workers. Well, by “plunged” we actually mean “surged” — that figure was a 3.7% increase on the February quarter and a 4.6% rise on the corresponding quarter in 2016. And that’s an 18% increase from the corresponding quarter five years ago. At nearly 6.4% of the entire workforce, food and beverage service employs a greater proportion of Australians than at any point in history. But penalty rates, etc, etc.

Rushed GST legislation failed proper processes. If you needed further proof that not a whole lot of thought went into the legislation that will ask overseas online retailers to collect GST for goods sold to Australians, look no further than the failure of Treasury to have a regulatory impact statement for the legislation. Treasury informed Crikey last week it was unable to find any regulatory impact statement for the legislation when we asked for one under freedom of information law. Such a document is required when a government decision is likely to have a regulatory impact on businesses or individuals.

In passing the legislation last week, Parliament delayed the introduction of the new scheme by a year until July 1, 2018, in order to conduct a review of all the proposals, which means that a better review of how the scheme would operate will now be done.

No papering over the cracks at DHS. You would think, given recent events, that the Department of Human Services wouldn’t mind less reliance on technology. But we hear that Centrelink is prioritising claims for payments filled out online ahead of those filled out on paper forms. A tipster told us a message came down to staff from senior levels in the department to not work on paper claims at all for seven days to “teach customers to use electronic means”.

We asked the department about this, and a spokesperson told us:

“There has been no directive to staff to stop processing paper claims. Claims are prioritised by date of receipt, unless the department is made aware of any extenuating issues, such as severe financial hardship. Obviously those claims that are lodged online with all the information required are available for processing sooner than paper claims that arrive through the mail.”

Know more? Let us know.

Get down with the kids. The most common comparison for the Liberals’ new website The Fair Go has been progressive activist group GetUp. But as a party publication that offers only opinion pieces, endorsements of Coalition policy, and no actual campaigns as of yet, it’s actually far closer to the Labor Herald (remember how well that went?). Except way more fun! Ms Tips was intrigued by the article “Who’s your grand-daddy?” — which seems to be attempting to connect with young people by using cool contractions, words like “woke” and comparing sections of society to housemates who don’t pull their weight. But we can’t begin to figure who the supposed audience is for the unforgettable (believe us, we tried) and borderline incomprehensible phrase “Grand-Daddy Corbyn and Sanders are scruffier and less sex than a daddy.”  

After Malcolm Turnbull’s Midwinter Ball speech, Fair Go seems to represent a Coalition move towards bringing the larfs. Just look at “Dear Bob”. It’s a fake agony aunt column, so far featuring a single letter from “always the bridesmaid”, who appears to have a bizarrely convoluted problem referring to the apparent disunity between Labor infrastructure spokesman Anthony Albanese and Opposition Leader Bill Shorten. The letter writer is mocked for having learnt to “play records on two gramophones simultaneously” in an attempt to woo younger members of the “selection panel” (selection panel, in this tortuous exercise, meaning voters).

We completely agree — what could be more embarrassing than politicians spouting faux trendy affectations in a completely tone-deaf attempt to woo younger voters? 

*Heard anything that might interest Crikey? Send your tips to boss@crikey.com.au or use our guaranteed anonymous form

Business

Jun 14, 2017

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The board of the embattled Ten Network has met again today, and the company is being put into voluntary administration. There won’t be a rose-coloured view of how Ten got to this position on the conflicted five-person board (with only two independent directors). In a moment’s candour all would agree the problems go back years.

In a statement to the ASX just after 11.30am, Ten directors announced the decision and said Korda Mentha, the Melbourne-based accounting group had been appointed as voluntary administrators of the company and each of its subsidiaries.

Following yesterday’s trading halt, The Australian today has tried to place blame for the company’s woes in the hands of an old Murdoch foe, Fairfax Media chair Nick Falloon (who was chair of Ten in the late noughties), saying he “saddled Ten with unsustainable costs”. The reality is very different.

In 2009-10, the year before Lachlan Murdoch took over, Ten had revenues of $991 million (which included its Eye outdoor business) and earnings before interest, tax, depreciation and amortisation (EBITDA) of $208.1 million. In 2013-14, when Lachlan Murdoch quit (in March 2014, just after the February half-year balance date), Ten reported revenue of $661 million (lower because of the sale of the outdoor business as well as the slide in ratings and TV revenues), and the network made a loss of $168 million, including $58 million in one-offs. The EBITDA loss was $79.3 million.

Ten collapsed into administration after nearly seven years of poor management decision-making, conflicts of interest, weak programming decisions and the downturn in ad revenue growth for all legacy media (thanks to the rise in social media such as Facebook). Fingers may well be pointed four billionaire shareholders: James Packer, Lachlan Murdoch, Gina Rinehart and Bruce Gordon.

They combined to force out the then-Ten chair Falloon (who was a former CEO of PBL, flicked by Kerry and James Packer in 2001) and CEO Grant Blackley. Falloon and Blackley had made costly moves to attract a broader range of viewers in the 25-to-54 group through more news, sport and general programming, rather than shows skewing towards Ten’s long-time 18- to 39-year-old demographic, which was deserting TV for social media. There followed years of interference. People in TV still remember some of Murdoch’s programming gems, such as So You Think You Can Dance Australia, with wife Sarah as host

Ten had four CEOs in seven years, so we also saw mass confusion. Lachlan Murdoch was first, before he became the executive chairman for two years, followed by James Warburton, Hamish McLennan and Paul Anderson. All were approved by Murdoch and the board, which included his personal representative Siobahn McKenna from 2012. She quit the Ten board in March this year without explanation and was found a safe job at News Corp, overseeing its pay TV interests.

Of the quartet of billionaires, Murdoch was the one who was more involved in management and strategy. He became the interim CEO in 2010 and was chair until he bolted in March 2014, returning to the family home as co-chair of News Corp and executive co-chair (with dad Rupert in both cases) of 21st Century Fox, unstained by ruining an Australian TV network.

But Lachlan Murdoch’s real legacy was to be found deep in Ten’s balance sheet and the $440 million fall in the value of the company’s TV licences from 2009-10 (the year before he took over as interim CEO) and 2013-14 (the year he left) — from $1.172 billion to $732 million, a fall of 37%. That’s what you call building value. That figure at February 28 this year was just $132 million. In other words, the billionaires, led by Murdoch, have helped blow up more than a billion dollars in balance sheet value at Ten. 

Administration will allow Ten to restructure program supply agreements with CBS (the most onerous being based on profit share from Ten’s ONE and Eleven digital channels) and with 21st Century Fox. Production deals with other suppliers, such as Endermol Shine (50% owned by 21st Century Fox) and Fox Sports (100% owned by News Corp) will remain in place. 

 

Media

Jun 13, 2017

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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

Companies

Apr 28, 2017

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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.

Companies

Apr 27, 2017

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Network Ten, Australia’s third commercial TV network, is broke and on the verge of collapse. It can’t meet its existing debts without a massive $250 million of new loans, is cutting costs, talking to would-be rescuers and foundering with no idea if it will have the finances to keep trading for much longer.

Media reports this morning say this uncertain situation will be settled a week from today when three big shareholders — James Packer, Lachlan Murdoch and Bruce Gordon (who have lost hundreds of millions of dollars in their share investments in Ten) — decide whether to guarantee the larger loan for the network despite being owed $29 million in guarantor fees, which Ten cannot pay on their support of the $200 million revolving credit from the Commonwealth Bank.

The news and the doubts about the company’s viability led Ten shares to collapse in a new spiral on the ASX this morning, plunging more than 15% to 37.5 cents just after 10.30am, after touching an all-time low in early trading of 35 cents (3.5 cents before last year’s one-for-10 share consolidation). That was a loss of 21%. The market obviously doubts the network will get any new loans and is pricing it as being on the verge of collapse.

Ten detailed its woes in a lengthy statement to the ASX this morning. In it, Ten revealed there was considerable doubt about its future — confirming Crikey’s story late last week that the network was in considerable trouble with doubt growing about its future. That was a situation briefly mentioned by management in this morning’s teleconference amid a lot of talk about how well Ten was doing so far as ad market share, ratings and advertising technology is concerned. All that will be irrelevant if Ten can’t get a new loan.

Ten said that despite a 21% rise in revenue, it lost $2.4 million on an earnings before interest, tax, depreciation and amortisation basis (the standard TV profit measure) in the six months to February 28. Ten told the ASX that it had written down the value of its TV assets by a further $214 million in the six months to February 28, reducing those to just $132 million and total assets to $172 million. The collapse in the Ten share price and its market value was also ignored in management commentary in the teleconference, as was the impairment of the TV licences.

Ten management warned in the ASX statement that without any relief on TV licence fees in the budget (worth around $23 million for Ten), the network will incur “an underlying EBITDA loss for the full 2017 financial year of between $25 million and $30 million”.

For all the talk about the higher ratings and ad revenues in the six months to the end of February, management was silent on the slump since then, as The Biggest Loser failed and had to be yanked from prime time, while ratings in the past month especially included some nights where Ten’s metro main channel has been near all-time lows at under 10% (such as last night, when it was just 8.8%)

[Is this the end of Channel Ten?]

The real meat in the announcement was contained in a separate filing, including the directors’ report and interim accounts. Under the heading “Going Concern”, directors explained that the company was talking to possible new lenders, to the three shareholders (Messrs James Packer, Lachlan Murdoch and Bruce Gordon) who had guaranteed the existing $200 million revolving credit from the Commonwealth Bank and who are owed $29 million (which can’t be repaid), cost-cutting and staff cuts are planned and the network is hoping the federal government either cuts or eliminates TV licence fees in the May 9 budget for the 2o17-18 financial year. The company wants a new loan or loans totaling $250 million, a big ask.

But directors warned:

“As a result of the matters disclosed, 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.”

Directors, however, reckon there is a chance they will get a refinancing of the existing debt and other offers to help it survive, so they have prepared the accounts as if the company will continue in business, and not at written-down values assuming a collapse.

“The Directors consider that it is reasonable to expect that the Group will be successful in the matters as detailed, and accordingly, have prepared the financial report on a going concern basis such that no asset is likely to be realised for an amount less than the amount at which it is recorded in the interim financial report at 28 February 2017. As a result, no adjustments have been made to the financial report relating to the recoverability and classification of the assets’ carrying amounts or the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.”

That is a big ask, and should lenders balk at refinancing existing debts and adding to the loan facility already in place, Ten will collapse. It not only needs the new loans to keep its head above water and will have to have the extra funds to bid for the new TV contract for the Big Bash cricket in summer, and pay for 2018 programming.

[Does Channel Ten need its own Kochie to survive the ratings war?]

Directors said Ten had just on $74 million of debt at February 28, down from $90 million at August 30. The $73.8 million is made up of $40 million drawn from the CBA revolving credit, capitalised interest of $5.5 million and the $29 million in shareholder guarantee fees. This debt is now current and the revolving credit is due on December 23.

“Net debt relating to the Company’s Revolving Cash Advance Facility at 28 February 2017 was $30.2m (Aug 2016: $53.5m), incorporating bank loan of $40m, capitalised interest and commitment fees of $5.5m less cash of $15.3m,” directors said in their report.

With this sort of financial mess, it’s no wonder Lachlan Murdoch’s representative on the Ten board, Siobhan McKenna, resigned on March 15 — a month after the company issued a shock profit warning and downgrade. She wasn’t replaced by Lachlan Murdoch, a sign that Ten’s troubles were worse than expected and that the network’s future was under increasing doubt with tens of millions of dollars in debts now due and unable to be repaid.

Lachlan Murdoch’s decision not to reappoint a replacement for McKenna should be seen as abandoning the network to uncertain fortunes at a time when, as a leading shareholder and former executive chair, he should have been showing some sort of leadership. He and his family should not be allowed to gain control of Ten via Foxtel or News Corp Australia.

Gina Rinehart, the wealthiest person in the country, has had her 10% shrink in value to where it is worth a fraction of the $208 million she invested back in 2010 — when James Packer bought an 18% stake and sold half of it to Lachlan Murdoch. Packer’s involvement must be in doubt as he tried to sell his Ten shares in March without any  success. And at this morning’s price of 37 cents, Ten was worth just $134 million — less than what Rinehart invested nearly seven years ago!

Companies

Apr 20, 2017

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The Ten Network, the country’s third commercial TV network, is in growing danger of collapse — so the stockmarket says as the company’s shares continue to hit a succession of new all-time lows in the past week as the release of the company’s half-year report draws closer.

Next Thursday Ten will release half-year results that could very well determine the company’s future and whether it will maintain its presence in the Australian media in its current form. The market dogs are barking that the report is going to be bad and that the future of country’s third free-to-air TV network is very much up in the air. In fact, the tanking share price is saying the company is not worth not very much at all. Ten shares fell to 49 cents yesterday, a new low (that’s 4.9 cents each before last year’s one-for-10 share consolidation).

At that level investors are saying that not only is Ten going to announce a loss and a big impairment of the value of the TV licences, but there’s also doubt the company can satisfactorily meet its debts. The $200 million revolving credit provided by the Commonwealth Bank (drawn down to the extent of at least $98 million at the end of the network’s 2015-16 financial year on August 30) is due to expire on December 23, and investors are looking for some sort of confidence-building statement from Ten and proof that any monies owning on that credit can be repaid.

If Ten fails to reassure investors that it can deal with the loan, doubt will grow that the company can survive in its current form. At yesterday’s close, the company was worth $177 million against a book value of $382 million at August 31, 2016. That indicates an impairment of more than $200 million. The only asset of any size is $346 million of intangibles (mostly the value of the TV licences). That doesn’t leave very much leeway for any further problems and would be dependent on the resolution (or clarification) of the CBA credit and the monies owed on it.

Ten shares fell by almost 3% yesterday, but they are down 45% since the 2017 peak on February 15, the day before the network released a shock statement downgrading earnings for the February half-year and for the year to August. In fact, the shares have slumped by 66% since the 52-week high of $1.47 hit last October. The market is telling us the country’s third TV network might not survive much longer in its present form — and perhaps in any form.

That won’t be good news for big shareholders Lachlan Murdoch, Gina Rinehart, James Packer and Bruce Gordon. All might be wealthy, but a loss is a loss. James Packer is busy restructuring his businesses (he quit Hollywood this week) and has tried to sell his Ten stake without success. Murdoch doesn’t even want a board place filled by his representative to be filled by a replacement for the time being.

If the company cannot provide convincing evidence that the CBA revolving credit and the money owed under it will be repaid, then the bank will look to the trio of guarantors for the loan –Murdoch, Packer and Gordon — for satisfaction. They are currently owed guarantor fees of around $25 million, which are convertible into Ten shares if Ten can’t repay them. That seems not very likely, so in that event (and will ASIC and ACMA, the media regulator allow Bruce Gordon to lift his stake in ten past 15% when he already controls 14.9% of Nine Entertainment?) CBA might have to declare the loan arrangement impaired, which could place further pressure on Ten. CBA is also a major bank for News Corp Australia, Fox Sports Australia, Sky News and Foxtel as well as Ten, so any decision on the loan will ripple through the local arms of the Murdoch empire.

At the same time Foxtel, 50% owned by News Corp, might have to further impair the value of its shareholding in Ten (currently around 14%). The December quarter report from News Corp revealed that as at December 31, Foxtel was carrying “$22 million in losses associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings”. Telstra, which owns 50% of Foxtel, must be over the moon about the money wasted on the Ten play, a deal that was driven by News Corp Australia.

That means Foxtel will probably have to further impair the value of its Ten stake after any loss or write-down next week. Ten’s write-downs last year were driven by the shares falling to 92.50 cents at the end of 2016. The fall to 57 cents at the end of the March quarter (and the further dip to 49 cents yesterday) will place more pressure on Foxtel (and on News Corp) for further write-downs.

Of continuing interest is the statement from Ten in March announcing the surprise resignation of director Siobhan McKenna, Lachlan Murdoch’s representative on the board. Murdoch’s name wasn’t mentioned in the Ten statement, which finished: “TEN understands that, for the time being, Ms McKenna’s nominating shareholder Illyria (Lachlan Murdoch’s investment company) does not propose to nominate a replacement on the Board of TEN.”

McKenna is now the head of broadcast at News Corp Australia (one of the Murdoch family companies), where she oversees Foxtel (50%), Fox Sports Australia (100% owned) and Sky News (100%). But not Ten, although she will be informed of any write-down by Foxtel. But the decision not to replace her raises the question: why now? Was it a judgement by Lachlan Murdoch that Ten’s financial problem is precarious and there is a danger that it could be seen trading when insolvent? Was it that there was no one else at Illyria to appoint to Ten, or was it a conscious decision to cut all ties to Ten, where Murdoch owns nearly 9% (and is wearing a multimillion-dollar loss as well)?

What happens if Ten gets deeper into the mire? Can it sell off its licence, give it back and what happens if it goes into administration? Ten and Nine have already been there in the past, and there’s nothing much new in that. If Ten is sold, can it be sold to a foreigner, as it was to Canwest, the Canadian company controlled by the Asper family that eventually went bust? What about being bought by Ten or Foxtel (so long as Telstra approves)?

Seven and Nine would love to see Ten go bust completely because that would mean the $600 million in annual revenue would be available to them, plus Foxtel, and to a lesser extent SBS. But the print and outdoor and radio industries would also love to get their hands on the Ten revenue. Ten and the other commercial networks look like they will get licence fee relief in the May budget, but that is only worth an estimated $33 million for Ten, not nearly enough to save the company’s finances from serious damage.

Economy

Dec 9, 2016

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The Australian economy, which passed away peacefully in its sleep on Wednesday, December 7, 2016, enjoyed a long and varied life, filled with adventure and incident, during which it was warmly beloved by all who knew it.

Born on January 1, 1901, the Australian economy was a lively and energetic youngster, remembered fondly by contemporaries for its high spirits and love of riding around on a sheep’s back. This youthful idyll, though providing many lucrative memories, could not last, and a sombre shadow was cast over the young economy’s life by the advent of World War I, and the difficulties that wartime industry and the loss of a large percentage of the workforce are bound to have on an economy still trying to find its feet in the world.

As time went on, friends remember the Australian economy spending less and less time on its beloved pet sheep, and finding other interests such as wheat, milk and metal. Like many young adults of that age, the economy found itself drawn to experimentation, hopping on and off the gold standard in its quest to “find itself”, but even when this phase passed, the economy found that its adolescent battle with body image persisted for most of its life, and it found itself swinging between inflation and deflation for many years, a sad indictment of the unreasonable expectations society places on economies.

In its later years, there were those who expressed concern that the Australian economy was becoming too fixated on metals and had given up hobbies like arts and crafts and submarines. Those who remembered the economy’s more stimulating days during World War II, when it was full of activity and even enjoyed some memorable overseas trips, were concerned that the economy had been failing to keep its mind alert, and its death was seen by some as an inevitable consequence of the decline in the economy’s interests.

The achievements of the Australian economy were many and impressive: liberalisation, deregulation, the successful sale of both a bank and an airline. In 1983, the economy managed to float its dollar, as a tribute to the victorious America’s Cup team. However, shortly after this, the celebrations turned to panic when the economy’s wayward son, Paul Keating, forced it into a recession against its will.

Tributes to the Australian economy were pouring in yesterday from friends and colleagues from around the world, including the US economy, which expressed condolences for the passing of its “little buddy”; the British economy, which called the Australian economy “one of my favourite children”; and Gina Rinehart, who remained tight-lipped over longstanding rumours of an affair between the economy and herself.

The Australian economy passed away at home, surrounded by family and friends, after a long battle with stagnation. Doctors diagnosed negative growth, but a post-mortem — to be carried out by Ross Gittins — is expected to provide a clearer picture on the exact cause of death. The Australian economy is survived by its eldest child the Federal Budget, its brother the Reserve Bank, and its faithful indentured servant the Australian environment.

The funeral will take place next Tuesday at 11am, at the Federal Treasury. The family has requested that in lieu of flowers donations be sent to the Australian Taxation Office.

Federal

Nov 3, 2016

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It’s Melbourne Cup Week, and the Senate doesn’t sit again until next Monday, so let’s start with a Cup story — prompted by Gina Rinehart’s unfortunate, and unseemly, tumble down the stairs when exiting the Emirates marquee.

In her defence, if there are any snickers about John Kerr or a “tired and emotional” state, I’ll admit I held the guard rail while descending because those temporary stairs were steep, deceptive and tricky. And I was drinking non-alcoholic wine I’d had couriered in.

The Rinehart incident reminded me of a similar tumble in the Members’ Enclosure in the early 1980s. The Cup’s indomitable doyenne, Lillian Frank, fell to the bottom of a stalled escalator just outside the champagne bar. As she lay on the ground, with a badly gashed leg and another flamboyant headpiece knocked askew, comedian Doug Mulray was heard to shout: “Put a screen around her and shoot her.” I was standing alongside of him. I think he was joking.

(It was good to see Lillian, and peripatetic party-goer husband Richard, back at Emirates on Tuesday.)

***

Speaking of the new commendably lite version of the Rinehart — who I’m told can’t be described as an heiress anymore because she inherited mainly debt from Lang — surprisingly, it was the first time we had ever met. A pleasant conversation followed in which she said: “We’d better not talk too long or people will think we’re discussing Kidman.” I said: “We’ll tell them we are … talking about Nicole.”

***

And on the subject of meeting people for the first time, at Mumm’s marquee I met Chloe Shorten and had a good chat about some of the issues that got me elected. Is it uncharitable to surmise that Bill is batting out of his crease — as they used to describe Julia Gillard’s mate, old what’sisname?

***

On those issues — like my push for a national public register of convicted sex offenders — I caught up with actress Rachel Griffiths, whom I’ve known since she was a teenager.

A worldwind (deliberate new word) of talent, she was at Flemington directing Ride Like a Girl, her new movie about last year’s winner, Michelle Payne.

We were talking about vile sex offenders in such an incongruous setting because, minutes before I gave a Melbourne Press Club speech recently, a hastily scrawled note from Rachel was thrust into my hand.

I knew she had been quietly campaigning for years against Australian men going on what I call “child rape holidays” in Cambodia.

In her note, which I read aloud that day, she made the chilling point that a bankrupt Australian can have his passport suspended and overseas trips banned for seven years but convicted paedophiles are free to travel.

It was the spark I needed to raise that issue in my first speech. Since then I have met with Foreign Minister Julie Bishop, Immigration Minister Peter Dutton, Border Force chiefs and the AFP. Encouragingly, at a recent meeting of state and federal justice and police ministers in Melbourne, they agreed to form a working group to see how that could be accomplished.

The group is to report back next year. I think something can be done sooner without new legislation and “in the national interest” by invoking current regulations. About 200 sleazebags have gone on such holidays in the past two years to Cambodia, Malaysia, Thailand, Myanmar, Indonesia and the Philippines.

Not coincidentally, last night I spoke at an anti-human slavery and child exploitation fundraiser in Sydney. Interestingly, Anti-Slavery Australia, based at the University of Technology in Sydney, is, I believe, the only university-based research centre in Australia dedicated to the rights of people who have experienced human trafficking here and abroad. And it does happen here. Think of Muslim child brides.

What was encouraging at the races was the number of young women, many of them young mothers (inexplicably wanting selfies) who, even in a carnival atmosphere, wanted to talk about the sex offender register and offer support for what we’re trying to achieve in Canberra. They were aware of the changes we forced on McDonald’s staff screening procedures and the call for a passport ban.

***

To wrap up the diary on a personal and political note. A dear friend of mine, Nancy Boyer, died on the idyllic Hawaiian hideaway called Kaua’i last weekend. I paid tribute to the civil rights champion on my Facebook page.

A former administrator at Columbia University in New York, she managed vacation rental properties on Kaua’i, including the Hanalei villa of golfing legend Bobby Jones.

The Clintons stayed there and were so impressed with Nancy they invited her to Bill’s inauguration.

Once, vice-president Al Gore and family were staying there. Nancy’s quaint caretaker cottage was next door to “the Jones house”.

My friend was a cat lover. One morning she was out hailing her latest pet, Tipper, oblivious to the Secret Service agents in and around the palm trees.

“Here Tipper, Tipper, Tipper. Get in here Tipper!”

The Secret Service pounced. What threat to national security was this bag lady?

Nancy Boyer was blissfully oblivious to the fact that Al Gore’s wife’s name was Tipper. Serves them right really.

***

Almost forgot. David Leyonhjelm took to Twitter late Saturday night to steal a line from my last Crikey column and call me a “dumb pile of parrot droppings” — or something like that.

leyonhjelm-tweet-to-hinch

He demanded an apology for something I’d written. I declined. Stuck to my Twitter Law: answer a tweet once, personally or generally, then disengage.

At least he reads it.

News

Sep 29, 2016

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From the Crikey grapevine, the latest tips and rumours …

Rupert Murdoch’s antagonistic history with Scientology. ABC Europe correspondent Steve Cannane’s book on Scientology, Fair Game, is out in a few days — Ms Tips found it chilling and very sad, but brilliantly reported. Rupert Murdoch makes several appearances. In 2012, Murdoch made his views on Scientology known:

murdochscientology

But Cannane covers many details about the mogul’s long relationship with the group. It was the Truth newspaper (est. 1890, later bought by Murdoch) that first began critical coverage of Scientology, paving the way for the organisation to be banned in three Australian states (the bans were overridden by attorney-general Lionel Murphy under the Whitlam government). From that point on, Murdoch became a person of interest to Scientology’s upper hierarchy, an interest that culminated in Murdoch being spied on by the organisation through a private detective.

In the late 1960s, the Guardian Office (which protects Scientology from attack) hired Rex Beaver, a private investigator, to spy on “persons of interest”, including Rupert Murdoch. Beaver spoke to Cannane for the book and told him he figured he could boost his income by acting as a double agent for the people Scientology asked him to spy on, which included a Liberal MP, the editor of The Daily Mirror, and Murdoch himself.

“Rupert was rapt,” Beaver told Cannane. “He even volunteered to have a photograph taken of himself emerging from a motel with his secretary!”

Beaver spent several months quietly gathering intelligence before going public in the Sunday Mirror. That led to another round of condemnation of Scientology in the Australian Parliament — needless to say the intelligence operation, intended to intimidate Scientology’s critics, spectacularly backfired.

Later in the book, Cannane reports on a plot to use James Packer, a one-time Scientologist, to recruit his friend Lachlan Murdoch, which would have been seen as quite a coup for the organisation. The plan doesn’t appear to have had much success — Packer himself drifted away from the group after a few years.

Malcolm Roberts, goldbug. As we get to know our new senators, we also get an insight into their lives from their declarations of pecuniary interests. While most declarations involve a residential property, a mortgage, and maybe some free footy tickets, new Labor Senator for the Northern Territory Malarndirri McCarthy quietly became the first politician to register her ownership of traditional lands:

malandirri-mccarthy-declaartion

New Senator Derryn Hinch declared a gift of the non-alcoholic wine, which is now stocked in Parliament House:

derryn-hinch-declaration

One Nation Senator Malcolm Roberts declared that he owns more than $7500 in gold and silver bullion, but he has been less than forthcoming about why he owns the precious metals. Roberts’ spokesperson told journos that he wouldn’t tell them why he loved gold so much, because he wasn’t a financial adviser:

“As per the Financial Services Reform Act 2001, Senator Roberts may not give financial advice ­unless licensed. As such he is not at liberty to discuss why he holds one asset class over another, only that he has met his obligations in making such declarations.”

malcolm-roberts-declaration

Roberts also owns a boat and a trailer, which seems like a worthy investment. Conservative Senator Cory Bernardi declared that he traveled to the Olympics with Gina Rinehart in a charter aircraft:

cory-bernardi-declaration

Some rumours never Indi. While Cathy McGowan has been elected for a second term as the independent member for the seat of Indi, there are some for whom the whiff of scandal around the 2013 election and the enrolment of “Indi expats” will never die down. Accusations that 27 supporters of McGowan, including her niece Maggie McGowan and backer Sophie Fuschen, had committed electoral fraud by enrolling in the electorate when they lived elsewhere have been dropped by the AFP, but that doesn’t mean that everyone else has let it go. Liberal Senator Dean Smith asked the AFP at Senate estimates in May about the use of Facebook by authorities, but the agency said social media wasn’t that important:

“Several of the persons of interest referred by the AEC did have social media profiles, some which included details of their geographic location and employment status. However, the AFP did not rely on social media postings to confirm the residential addresses or employment status of the 27 suspects.”

Reports at the time suggested that Facebook posts had been deleted after the case came to the attention of the media, but the AFP said that made no difference to the investigation.

“AFP investigators were aware of media articles reporting that some social media records may have been deleted after this matter became public. Social media aided, but was only one aspect of, the investigation. The deletion of the material did not adversely impact the investigation.”

Jones gives Davidson both barrels. Broadcaster Alan Jones turned his vitriol in a new direction this morning, having a go at The Australian‘s media editor, Darren Davidson, for his reporting on the latest round of radio ratings. It’s something to behold as Jones intones “whoever this bloke Darren Davidson is, I have no idea, he writes about Smooth FM claiming its third consecutive survey win”. He goes on to say “now I’ve got news for you Darren Davidson, whoever the hell you are, media editor, and hopefully Paul Whittaker will move you off,” defending his own station, 2GB, from the scurrilous claim that Smooth FM, owned by Nova, had won the Sydney radio ratings survey. Jones went on to describe Davidson as someone who is “cavalier with the truth, who doesn’t seem to understand that they are radio ratings, commercial radio ratings, they’re not FM ratings, they’re not AM ratings”.

Of course, Jones had to let his listeners know that 2GB had won the survey period, which we’re sure was their main concern as they were stuck in Sydney traffic. The full audio is here.

*Heard anything that might interest Crikey? Send your tips to boss@crikey.com.au or use our guaranteed anonymous form

Journalism

May 27, 2016

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Every year, there’s usually one story that dominates coverage of the BRW Rich List. Like when Ivan Glasenberg’s Australian citizenship was discovered, leading to his debut on the Rich List at second place. Or the following year, when Gina Rinehart’s wealth neared $30 billion.

The story of this year’s list is less dramatic than has been the case in the past. After appearing in all 33 Rich Lists so far compiled by Fairfax, 83-year-old apartment developer Harry Triguboff has finally topped the list, with an estimated total net worth of $10.62 billion. But his wealth hasn’t risen all that much on last year, when he had $10.23 billion to his name. The most dazzling thing has been the tumble in the wealth of Gina Rinehart, who, for the first time since 2011, is not the richest person on the list. This is hardly unexpected, with iron ore prices a fraction of what they were a year ago and a highly publicised court case breaking up part of the fortune in favour of Rinehart’s daughter Bianca (a debutante on this year’s list).

Nonetheless, even without a spectacular, unexpected story of triumph at the top of the list, it remains a snapshot of the fabric of Australia — a reflection of economic trends seen through the fortunes of Australia’s wealthiest people, many of whom enjoy their wealth in private most of the time but are dragged into the limelight once a year. Here’s some of what can be found in this year’s edition.

Controversy doesn’t hurt, but the courts do

In a development sure to raise eyebrows, Russell Withers, the owner of the 7-Eleven chain of convenience stores, was pegged at $747 million last year and $1.34 billion this year, doubling his fortune, according to BRW. This comes despite a Four Corners/Fairfax investigation on serial underpayment at his chains. He probably won’t appreciate the attention — the controversy over how to compensate his workers is still ongoing.

Another of the most dramatic shifts has been in the wealth of Clive Palmer. But his creditors are unlikely to be thrilled with the valuation. He was worth $1.4 billion last year, but BRW pegged him at only $570 million this time following “woes of his Queensland Nickel and continued legal stoush with CITIC Pacific”. His entry notes he has been “forced to sell a jet”. On ABC radio this morning he appeared unfazed. “I’ve never paid much attention the BRW lists, and they’re certainly not accurate in this occasion,” he said.

Poor little rich billionaires

Though Palmer is no longer one, Australia has more billionaires than ever. But even though four more people have joined the billionaire class, the total wealth of Australia’s billionaires has declined (from a total wealth of $126.09 billion held between 49 people to $123.52 billion held by 53 people), as the economy and the courts battered the fortunes of the nation’s wealthiest Rich Listers.

All that decline is accounted for in the falling wealth of Gina Rinehart. The total net-worth of the 200 people on the list (just under $200 billion) increased slightly but not spectacularly.

Rinehart, Packer fortunes split

Speaking of Rinehart, what a fall!

At the height of her wealth in 2012, Gina Rinehart was worth $29.17 billion and could have been the world’s richest woman (BRW said she was, but Forbes always valued her far more conservatively — at the peak of her fortune the American magazine had her only at $16 billion, well behind L’Oreal heiress Liliane Bettencourt). Whether or not she was ever the world’s richest woman, for the first time in five years she’s not even Australia’s richest person, taking a tumble to fourth place as her fortune more than halved, from$14.02 billion to $6.06 billion. It shows how brittle valuations of ore still in the ground can be — much of Rinehart’s wealth was always about the value of the deposits she owned, and commodity prices are fickle. Another factor, though a less significant one, also affected her figure — her settlement with her children, which has brought daughter Bianca Rinehart onto the list (with $905 million, as a result of her 23% ownership of Hancock Prospecting) for the first time.

Another old fortune has also been split, though in this case, far less acrimoniously. James Packer split ownership of the family business with his sister Gretel Packer this year, which has led to her debuting on the list with $739 million. That explains most of Packer’s billion-dollar fall — his valuation has gone from $6.08 billion to $5.00 billion this year. His entry on the list notes a series of setbacks that have seen the share price of Crown Resorts drop — another factor in his falling wealth.

Property still royal, but apartments are king

Like in previous years, property remains the quickest, surest way to build a fortune. Of the 200 richest Australians, 54 are primarily exposed to the property market — a new record on last year’s 53. A total of 86 richies had property listed as one of the sources of their wealth. This year’s richest Australian, Harry “High-Rise” Triguboff, makes his money on apartments. His Meriton Group builds them then sells or rents them out — a good business in Sydney’s property boom.

He’s not the only one to make money out of apartments. The youngest debut on the list is 34-year-old Tim Gurner, a developer who builds swanky apartments for hipsters in Melbourne’s inner city — he’s valued at $460 million. Paul Blackburne ($536 million) and Jonathan Hallinan ($459 million) are two more apartment developers who make their debut on this year’s list.