The Ten Network (TEN) is facing a grim future. Board discussions yesterday and today could see the company placed in administration by the end of this week if the directors can’t find a new source and/or support for a $250 million loan (with no strings attached – a big ask).
But no matter what the board claims of the chances of a new loan being put in place, it is grim news for small shareholders. Ten shares will remain under pressure if it manages to survive this crisis of confidence.
They should realise that the real message from company’s five biggest shareholders – Lachlan Murdoch, Bruce Gordon, James Packer, Gina Rinehart and Foxtel (half owned by News Corp, which is co-chaired by Lachlan Murdoch) is that Ten’s shares are worthless.
The big shareholders who control more than 42% of the company can’t justify investing any more money in Ten, therefore it is a dead duck.
James Packer hasn’t been interested in Ten for months – he tried in vain to sell his 7.7% stake in Ten in March through UBS and found no takers.
Lachlan Murdoch has 7.7% (which he bought from Packer for $128.2 million) has refused to support the $250 million loan via a guarantee. Packer paid $280 million for a 17.88% stake in Ten in 2010 and sold half to Murdoch. Gina Rinehart, anther big shareholder, paid $157 million for her 10% in 2010, 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.
Bruce Gordon, who also refused to guarantee the $250 million loan 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 now 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.
And if Ten manages to survive this week – and after the trading halt yesterday and news that Messrs Murdoch and Gordon are no longer interested in guaranteeing the new $250 million – the shares will crash as it confronts a mountain of hurdles to survive.
Unless there is a rebound in the share price, directors will be forced to once again consider the value of the company’s remaining assets (especially the depreciated value of the TV licences at $132 million) as the August 28 balance date approaches. We are more than half way through the second half of the 2016-17 financial year and the outlook isn’t good.
At February 8, the end of the company’s first half, Ten shares were on 65 cents, down from around $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 (a loss of $232 million including asset impairments) were released, which also disclosed a warning from directors about the company’s parlous financial state. At 16 cents there is another big loss looming.
And if Ten goes into administrator, there is only one buyer – News Corp, but only if the Federal Government’s media law changes are passed by parliament, especially the Senate.
At the moment there is no sign of the legislation in the Senate. There are only nine more sitting days in Canberra before Parliament rises for the Winter recess.
But Ten’s 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?
Confirmation from Ten yesterday that Messrs Gordon and Murdoch are no longer interested in guaranteeing the $250 million loan was the death sentence for the network.
The duo have 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 (at least $66 million owned on it by late April) provided by the Commonwealth Bank and due for repayment on December 23.
Those lost fees seem a small loss given the view that the $250 million loan was just too much to guarantee.
In a statement issued late yesterday the Australian Shareholders Association (ASA) called for the company’s shares to be suspended for longer than the two day halt sought by the board. The ASA also expressed concern about the governance and trading situation at Ten as 17,000 retail shareholders face the prospect of losing 100% of their investment if administrators are appointed as early as this week.
ASA CEO Judith Fox said, “The board should not rush prematurely into administration, but instead seek a suspension from trading which would allow time to further explore funding options, contract renegotiations and potentially allow the proposed licence fee cut and the elimination of outdated regulations to be passed by Federal Parliament.”
She pointed the current governance model at Ten of only having two independent directors is not appropriate for these delicate negotiations and said the ASA believes new independent directors should be added to the board as a matter of urgency.
“Given the substantial conflicts of interest and potential related party transactions at play, ASA believes TEN needs to immediately move to a conventional board with a majority of independent directors,” Ms Fox said.
“For that to happen, TEN needs to quickly add two new independent directors so the independents have a majority and can out-vote all of the conflicted directors if necessary to ensure the interests of minority shareholders are protected and conflicts of interest are appropriately managed,” Ms Fox said in the statement.
