December 7, 2012, 11:40 AM M&A Bankers Should Tune into Ten, Says Credit Suisse Article Comments Deal Journal Australia HOME PAGE » By Ross Kelly
Ten Network’s dismal ratings performance has at least made it popular with investment bankers.
And now that equity capital markets at Citi has had its fill, it could be time for Australia’s mergers and acquisitions teams to tune in to the struggling free-to-air network’s dramas.
Ten–which counts mining heiress Gina Rinehart, gaming tycoon James Packer and media identities Lachlan Murdoch and Bruce Gordon as major shareholders–was forced into a 230 million Australian dollar (US$241 million) equity raising this week to ease a debt load that’s appearing more cumbersome against some pretty ordinary revenue streams that seem to get punier by the month.
But with the issue of new shares moving Ten to a A$45 million net cash position Credit Suisse CSGN.VX +0.62%media analyst Samantha Carleton says it could ripe for the picking.
“The likelihood of Ten being acquired has increased, in our view, given Ten’s improved balance sheet and share price,” Ms. Carleton says.
Potential suitors could include radio and regional television broadcaster Southern Cross Media Group SXL.AU +0.18%, Mr. Murdoch or Mr. Gordon, she says.
To be sure, Southern Cross would likely have to launch a share-based offer because its A$610 million debt pile represents around 2.7 times its earnings, before interest, tax, depreciation and amortization for the last financial year. Ten currently has a market value of A$467 million.
Describing Ten’s shares as “a high-risk buying opportunity”, Ms. Carleton says most of the risks facing the company have already been priced in, adding its free-to-air television advertising revenue share, at 21%, is unlikely to deteriorate much further.
She also notes that Ten is fast-tracking new U.S. content and tweaking reality shows MasterChef and The Biggest Loser to provide a more stable schedule for viewers, while also moving The Simpsons back to Ten from the Eleven digital channel in the 6pm time slot.
Not everyone, however, is convinced the rot has stopped.
Goldman Sachs GS +0.06%and UBS UBSN.VX +1.01%both kept sell recommendations on the shares with 12-month price targets of 20 cents compared to their most recent trade of 33 cents.
“While the strengthening of the balance sheet is a positive, the programming cost cuts on the outset look concerning,” Goldman Sachs media analyst Christian Guerra says
