Ten stalked by takeover talk as private equity mulls bid
James Chessell, Sarah Thompson and Jake Mitchell
Published: October 18, 2014 - 8:15AM
New York hedge fund Anchorage Capital Group has approached Providence Equity Partners about exploring a joint bid for the struggling Ten Network Holdings.
It is understood Anchorage, which manages about $US10.4 billion worth of assets globally, has broached the idea of a joint takeover with Providence's investment banking adviser, Deutsche, and is thought to have engaged with Ten's adviser Citigroup.
The emergence of Anchorage as a potential bidder for Ten re-affirms the third-placed free-to-air commercial network as a takeover target, although sources close to the discussions say there is no guarantee a bid will be made while Ten's share price trades at current levels.
The news comes one day after Ten unveiled a $168 million loss for the 12 months ended August 31. The company has suffered from years of weak ratings and revenue, driving its market value below $600 million, and making it vulnerable to a takeover.
Ten stock fell almost 15 per cent in the lead up to the results, but has since recovered to 21.25¢. Even at these depressed prices, it is believed Providence has doubts it could generate a decent return from a bid that would also require a substantial new investment in new programming such as sports rights. Sources said Providence, which has met with Ten executive chairman Hamish McLennan, would prefer to bid in conjunction with another partner.
Anchorage is a distressed asset-focused hedge fund, which was founded in 2003 by former Goldman Sachs distressed debt trading specialists Kevin Ulrich and Anthony Davis.
Among Anchorage's most recent deals in Australia was the sale of 139-year-old bankrupt Tasmanian timber company Gunns to New Forests for $330 million in May.
Any bid for Ten would need to pass current media regulations and require the support of four key shareholders that control around 40 per cent of the stock – mining magnate Gina Rinehart, News Corp co-chairman Lachlan Murdoch, Crown Resorts chairman James Packer and WIN Corporation owner Bruce Gordon.
Mr Murdoch, a former Ten chief executive, is understood to be a willing seller. Some members of the Ten board also believe the company stands a better chance of recovery if it is privately owned.
It is understood pay television group Foxtel remains open to a partnership with Providence if it pushed ahead with a formal bid. Foxtel is owned by Rupert Murdoch's News Corporation and telecommunications giant Telstra.
Despite solid ratings from its flagship cooking program Masterchef Australia, as well as televising the Sochi Winter Olympic Games and Glasgow Commonwealth Games, Ten's revenue share of the metropolitan free-to-air advertising market fell in fiscal year 2014, while the company's costs increased 17 per cent year on year.
A key problem for Ten is it has been cutting costs when it arguably needs to invest in content.
UBS analyst Richard Eary sounded a rare note of optimism on Friday in a note that said Ten could generate positive earnings before interest, tax, depreciation and amortisation this financial year, driven by a rebound in the metro free-to-air ad market and lower operating costs.
Mr Eary lifted his EBITDA forecast for fiscal year 2015 to $0.3 million, compared with the $79 million loss the company recorded for fiscal year 2014, after Ten issued guidance at its result for an 8 per cent reduction in TV costs.
The interest in Ten comes at a critical time, given negotiations for the Australian Football League media rights beyond 2016 are expected to begin by the end of the year.
A new owner or a partnership with Foxtel would strengthen Ten's position to secure the mainstream sports rights it needs to grow its audience. Foxtel would face regulatory and political challenges it were to take part in a bid for Ten. However, its interest in Ten is another sign that traditional media companies are being forced to pursue growth through mergers and acquisitions.
The migration of audiences and advertisers to digital platforms has prompted traditional media companies to consider deals that would create new sources of revenue and allow the sale of "bundled" cross-media advertising packages.
The Australian Financial Review has reported Foxtel had worked with Providence on a joint bid that would have given the pay-TV monopoly a 10 per cent to 20 per cent stake in Ten.
The proposed deal would have allowed the four key shareholders to retain their stock.
However, sources close to the negotiations said Foxtel decided against taking a direct stake in Ten last month "for a number of reasons", including disagreements with Providence over price and structure.
with Max Mason
This story was found at: http://www.smh.com.au/business/medi...private-equity-mulls-bid-20141017-117kyy.html
