A $200 million debt facility approved by some of Australia's richest media investors could be a key sticking point in a private equity play for Ten Network.
Fairfax media reported on Monday that US media investor Providence Equity Partners was considering a bid for the troubled network, whose shares closed 0.5¢ higher at 25¢. Shares have dived 4¢ in the past week - 13 per cent - following downgraded revenue forecasts.
The debt facility, guaranteed by major shareholders Lachlan Murdoch, Bruce Gordon and James Packer, was approved in February. The company, which has net debt of $35.9 million, has so far used $55 million of the facility.
''You've got the loans that were promoted by the directors. Given the operational challenges they face … I don't know what all the terms and covenants of those are but that's going to be a significant factor in whatever happens,'' said one analyst.
Ten has lost 90 per cent of its share value since 2004, and recorded a net loss after tax of $8 million in the half-year to February. It has slipped from third to fourth among the five ''free-to-air'' channels, behind the ABC.
Sources described contact between Providence and Ten as ''preliminary'' but 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''.
Any deal remains some way off, however, and would be dependent on changes to media ownership laws making it easier for Ten to merge with a regional affiliate or rival company.
British network ITV was reported to have ''kicked Ten's tyres'' earlier this year while News Corporation and Fairfax Media are also rumoured to be interested.
About 40 per cent of Ten's share register is tied up by four big investors: former chairman Lachlan Murdoch, Crown chairman Mr Packer, mining magnate Gina Rinehart and WIN Corporation owner Mr Gordon. Mr Packer bought a 16.5 per cent stake in Ten for $258 million at $1.50 a share in October 2010. A month later half of that stake was sold to Mr Murdoch, who paid $128 million at $1.37 a share.
While some analysts believe Ten's fortunes and share price have bottomed, others believe the worst is to come. Equities research firm Morningstar values Ten's shares at just 13¢.
''This is well below the market price and, consequently, we view the shares as materially overvalued,'' Morningstar analyst Tim Montague-Jones said. ''We differ from the market because we do not expect Ten to regain a material share of the free-to-air television advertising market … [Seven and Nine] are capturing close to 80 per cent of viewers and advertising expenditure.''
Those who assess Ten as a speculative buy include analyst Greg Smith from Fat Prophets. ''The company's share price is trading at depressed levels while earnings have passed a cyclical low point, in our view,'' Mr Smith said.
