Private equity circles Ten: report, page-2

ARAH THOMPSON AND JAMES CHESSELL
KEY POINTS

• US media investor Providence weighing up a bid for Ten’s equity and debt.
• Changes to the media ownership laws a key catalyst for the bid.

Ten Network Holdings has attracted the interest of private equity firms that are weighing offers for the troubled free-to-air network amid potential changes to key programming contracts and media ownership laws.
It is believed United States media investor Providence Equity Partners has begun running the numbers on a potential bid for Ten’s equity and debt in a move likely to be encouraged by the company’s board and management.
Sources close to the process said the company behind MasterChef Australia and Offspring had retained long-term adviser Citi as well as legal firm Gilbert + Tobin to provide the commercial network with strategic advice.
Providence executives visited Australia earlier this month to meet media companies including Ten, which reported a profit downgrade on Wednesday.
The sources said Ten directors believed the embattled company would stand a better chance of surviving if it was “taken private”. Ten’s weak ratings and revenue over the past four years have left it open to an opportunistic bid by parties who believe there is still value in the third commercial free-to-air licence.
While contact between Providence and Ten was described as “preliminary”, the sources said there “was a lot of work going on behind the scenes with a number of parties to try to make something happen at Ten”.
Key catalysts for a formal bid include changes to the media ownership laws that would make it easier for Ten to merge with a regional affiliate or rival company, as well as new program supply deals. It is understood Ten executives, led by executive chairman Hamish McLennan, are attempting to renegotiate expensive supply deals with US studios CBS and Fox inherited by previous management as part of ongoing efforts to reduce costs.
Sources said management had some success changing the terms of the deal with CBS, which is a joint-venture partner on digital channel Eleven.
Ten warned the metropolitan free-to-air advertising market was “volatile” and forecast revenue for the 2014 financial year would be “3.5 per cent to 4.5 per cent below the prior year” total of $630.1 million. The Sydney-based company said costs would be up 8 per cent in 2014 with “one-off events” such as the Glasgow Commonwealth Games and Sochi Winter Olympics expected to add $55 million to Ten’s expenses.
About 40 per cent of Ten’s share register is tied up by four big investors: former chairman Lachlan Murdoch, Crown chairman James Packer, mining magnate Gina Rinehart and WIN Corporation owner Bruce Gordon.
The stock fell more than 18 per cent last week to finish at 24.5¢. Given the uncertainty over the value of Ten’s equity, it is believed the private equity interest also covers a $200 million loan from Commonwealth Bank, guaranteed by Mr Murdoch, Mr Gordon and Mr Packer. Providence is familiar with Mr Murdoch and Mr Packer, having almost signed a $3.3 billion deal to privatise pay TV investment vehicle Consolidated Media Holdings (later bought by News Corporation) in 2008.
The Australian Financial Review reported in May that British network ITV had “kicked Ten’s tyres” earlier this year and that the Ten board was open to any “offer that contained a premium for shareholders”. The share slump following the profit downgrade would make it easier for any interested party to launch a bid without paying a big premium.Ten declined to comment. Providence and Citi did not return calls.