The struggling Ten Network’s share buyback announcement had the desired effect yesterday, putting a line under the floundering share price and producing a small but appreciated lift of around 5% in the share price.
All shareholders will no doubt appreciate the move, but none more so than the company’s big two, CanWest of Canada with 56.7% and WIN Corporation of Australia with 13%.
Both groups and their bankers can rest a bit more easily now that we know the shares won’t be allowed to drift any lower than where they now are: around $1.44.
They finished up 8.5c, or more than 6% and hit a day’s high of $1.46. It was the shares’ best performance for months.
Struggling Ten will outlay the best part of $130-$150 million over the next year to push the share price higher.
Since its surprise earnings downgrade on Jun 13, the network has been battling perceptions that it’s doing it tough in the TV broadcasting and ad markets with earnings to be down at least 10% for 2008 and 2009 looking tough.
That the buyback will support the company’s weak share market situation is not in doubt: that it will help majority shareholder, CanWest Global of Canada (it will increase its control over the company) and its second biggest shareholder, WIN Corporation, controlled by billionaire, Bruce Gordon, is also not in doubt.
Their gains will be a lot more than those of other shareholders in that they stand to lose a lot more if the share price had been allowed to weaken any further.
In a statement to the ASX yesterday the network said it was "its intention to undertake an on-market share buyback of up to approximately 10 per cent of its issued shares over the next 12 months.
"TEN’s executive chairman, Nick Falloon, said: “Given the current TEN share price, the proposed share buyback should deliver long term value to our shareholders."
“Mr Falloon noted that changes to TEN’s structure at the time of the exchange by CanWest of its securities in late August 2007 had allowed TEN’s board to consider various options in relation to capital management, so as to maximise returns to its shareholders.
“CanWest has advised TEN that it will not participate in the share buyback at this time.”
Now all shareholders will benefit, but most do not have the difficult financial situations that CanWest and WIN have at the moment with their holdings in Ten and with their businesses.
Bruce Gordon and WIN Corporation have just spent another $16.9 million lifting their stake in Ten from 11.9% to 13%. Most of the shares were bought after the Ten share price fell sharply in the wake of the surprise earnings downgrade for 2008 on June 13.
Bruce Gordon has been averaging down, trying to lower his effective cost by buying shares at falling prices.
The buyback, if Gordon doesn’t sell into it, will effectively boost his take over the next year by around 10%, to more than 15%.
He is prevented from owning any more of 15% of Ten as that would put him and WIN in breach of the 75% rule which restricts TV operators to a total share of 75% across Australia.
There’s no reason for WIN to accept the buyback as it would be tantamount to selling some shares at a loss!
Gordon’s company might have to revalue their Ten shares at the average buyback price, and this could produce a loss, which the banks would not like.
The buyback will mean that WIN and CanWest control over 70% of Ten’s shares.
The reduced float and buyback will push the price higher from the current depressed $1.35, which will mean WIN isn’t so far underwater on its purchases.
It bought millions of shares well above $2 a share (and higher than $3), so the drop in the Ten share price is hurting.
That keeps Gordon’s banks happy and means his Loan to Valuation Ratio rises on his borrowings.
WIN also paid the best part of $270 million last year for the Nine stations in Perth and Adelaide.
CanWest though it’s the big winner. It’s saying no to the buyback (though it could have done with the cash) and if the 10% buyback happens in full, its stake in Ten will rise to over 61% from the current 56.7%.
CanWest is controlled by the Asper family and the company and the family have the huge task of refinancing the purchase of Alliance Atlantis by December.
A huge balloon payment is needed to settle the $CAD2.3 billion cost of Alliance that was provided by Goldman Sachs Private Equity at the start of 2007. Having a stable to rising price for Ten will be good for CanWest’s negotiations with its banks.
Ten is CanWest’s most important asset at the moment: its worth a lot more than the poorly performing TV and newspaper assets it owns in Canada and the poorly performing radio assets in Europe and elsewhere.
More importantly it is throwing off cash and earnings, although both will be cut by the ad downturn here and by the buyback.
Ten will borrow the money for the buyback, which will cost more because interest rates have firmed and Ten is paying more under its recently rolled over refinancing package.
But it’s all in a good cause, especially the causes of CanWest and WIN.
