Ten Network’s (TEN) desperate plea for fresh money yesterday contrasts unfavourably with the ease with which Seven West Media (SWM) raised $289 million to help get Kerry Stokes out of a hole over the embarrassingly over-priced 2,500 convertible preference shares issued to complete the financing of the $4.1 billion of the merger of Seven and West Australian Newspapers back in 2011.
Those convertible prefs had a conversion rate well above $6 a share – Seven West shares have traded around $1.35 in recent months with no chance of regaining the $6 level between now and the day the prefs have to be redeemed or exchanged – April 20, 2016. The institutional offer was made at $1.28 a share.
So it’s a deal favourable to Mr Stokes who will probably lift his shareholding in Seven West Media (via his main company Seven Group) because retail shareholders in Seven West won’t support the $1.25 a share issue (starting May 8) and Seven Group’s stake could rise to 40% from the current 35%.
So even though Stokes will benefit from this deal and its unwinding, Seven West Media still found it easy to whip up $289 million in 24 hours.
Seven’s success proves the money’s there at the big end of town for these types of refinancing deals, it’s just that you have to be profitable and have prospects – and one of those was very much absent from Ten’s plea for more money yesterday – the certainty of revenue growth and profits.
The desperation Ten is now exhibiting about the need for more funding and its future tells us the network is in dire straits. While it reckons it has enough money to get through the next year under the $200 million loan deal from the Commonwealth Bank, any hiccup in the economy, the TV ad market or in ratings performance by its programs, and the network’s finances could snap.
That’s why Ten warned investors it is nearing the limits of its $200 million loan and will need to recapitalise if its share of television advertising revenue weakens in the current weak and volatile ad market.
The warning came as Ten revealed a $264 million loss for the six months ending February 28 after it wrote down the value of its television licences by $251 million (on top of the smaller $52 million write down in 2013-14). This compares with an $8 million loss in the previous corresponding first half period.
Ten said in its financial results statement to the ASX that it could be forced to take emergency measures in the next year.
"The company and its controlled entities’ cash flow forecasts indicate that it will operate within the limits of it $200 million funding facility for the 12 month period following the signing of these financial statements," the network said.
“However, a reduction in revenue compared to forecast due to television advertising market volatility or an adverse impact on the group’s market share could result in these cash flow forecasts not being achieved.
“If this was to occur the group will need to take appropriate actions, including raising debt or equity funding should that be required in order to continue to operate within its existing $200 million funding facility."
Ten has been trying to sell itself – well, that’s the way it started last October, but that has gradually been wound back to a placement at 18c a share to Foxtel (half-owned by News Corp) and an issue to shareholders to top that up a bit, perhaps to $100 million.
That in turn tells us that Ten is unsellable at the moment – the reverse auction started at 26c and is now at 18c.
Ten has already raised over $420 million from shareholders in two previous issues and a third is bound to fail given the lack of any future for the network and the deadline of the $200 million loan from the CBA in two years time.
Will shareholders such as James Packer, Lachlan Murdoch or Gina RInehart put more money into Ten in any issue. They reportedly don’t want to, but if they don’t Ten is a dead duck, because why would any other shareholders support a capital raising?
That big write-down is a better indicator of Ten’s weak immediate outlook than the management’s boasting about the ratings rebound, better programming performance, the earnings before interest, tax, depreciation and amortisation of $7.5 million, but a 1.6% fall in TV ad revenues in the half year.
That loan from the CBA has been guaranteed by James Packer, Lachlan Murdoch and Bruce Gordon (but not Gina Rinehart). If the CBA becomes worried Ten might not be able to repay, will the bank approach that trio and ask them about their intentions to pay it back?
They are on the hook with their guarantees and can’t get off, but don’t want to invest any more money.
Hence Ten’s desperate appeal for a new source of cash – any cash. It is clear the billionaires are not interested in financing Ten at the moment, or can, subject to the media laws in the case of Bruce Gordon.
Ten doesn’t have any more room to move financially in its accounts to cover a ratings disaster or a downturn in the economy and any fall in the already weak level of advertising.
That’s makes next Tuesday night’s debut of the new series of Masterchef so vital to the network’s future.
If Masterchef does well, then Ten will get more time, but if its ratings are down or weak and don’t start recovering in coming weeks, doubt will grow about the Ten’s chances of survival.
Ten’s shares were unchanged at 20.5c yesterday, well above the reported placement price of 18c. The market still doesn’t reckon a deal will be done. That’s a premium of nearly 15% to the 18c price.
