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Network Ten in voluntary administration

Network Ten in voluntary administration

June 19, 2017 11:49 AM | Print this page

Ten Network Holdings Ltd (Ten) board of directors have elected to put the company into voluntary administration. KordaMentha have been appointed as administrators of the company and each of it's subsidiaries. According to the media release announcing the appointment of the administrators:
'Network Ten will continue to operate under its existing management an cooperating structures with KordaMentha oversight. Customers, employees and other stakeholders are assured that the administrators intend to keep the business running. Viewers can expect the same content they currently enjoy on Network Ten. The appointment will allow the voluntary administrators to explore options for the recapitalisation or sale of Network Ten.'

Ten announced a 48 hour trading halt to the market earlier in the week citing news that shareholders Illyria (Mr Murdoch) and Birketu (Mr Gordon) had determined not to continue financial support for the company. The AFR reports that the investors are guarantors on an existing $200m facility for Ten from the Commonwealth Bank of Australia due to expire and be repaid in December. Ten has been seeking a new $250m loan to replace the existing one in order to enable it to continue in a changed commercial environment with rising operating costs and dropping advertising revenue.

The AFR reports that 'no one close to refinancing talks believes Ten will be shut down' and that a debt for equity swap 'could be on the cards for Ten'. This could enable some of the shareholders to privatise Ten, introduce a new corporate strategy and rebuild the company away from the scrutiny of being publicly traded the report suggests.

Australian Shareholders Association (ASA) concerns over governance structure
Earlier in the week and prior to the announcement of the trading halt and subsequent announcement that the company had elected to go into voluntary administration, the Australian Shareholders Association (ASA) issued a media release in which it 'expressed concern about the governance and trading situation at TEN Network Holdings as 17,000 retail shareholders face the prospect of losing 100% of their investment if administrators are appointed as early as this week'. The media release stated that:

  • the current governance model of only having two independent directors is not appropriate for these delicate negotiations and 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 - 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
  • ASA is surprised at the prospect of administrators being called in given the $200 million facility with the Commonwealth Bank was only $66 million drawn at the half year and does not fall due until December 2017
  • ASA notes that issuers such as Bellamy’s and G8 Education have all recently had their shares suspended to allow time for capital raisings or commercial negotiations to take place.
  • The directors of TEN have the power to request a suspension and pursue a similar strategy, rather than rushing into administration, and we believe they should do that whilst also appointing new independent directors

The AFR expressed agreement with the ASA reporting that the 'Australian Shareholders Association was right…To highlight the deficiencies in Ten's governance, including the lack of independent directors and the conflicts of interest between major shareholders: 'There appear to be conflicts between the interests of Lachlan Murdoch as a private investor in Ten and the interests of Foxtel, which is an investor in Ten, and the interests of News Corp, which owns half of Foxtel and is chaired by Murdoch. Murdoch was a guarantor of Ten's debt. Foxtel is represented on the board by Peter Tonagh, who is the CEO of Foxtel. There also appears to be conflicts between the interests of Murdoch and 21st Century Fox, which is a supplier of programs to Ten. Murdoch is executive chairman of 21st Century Fox. There also appears to be a conflict between the interests of Bruce Gordon as owner of Win TV and his guarantee of Ten's debt' the report notes.

22.47% joint venture announced between shareholders reportedly won't breach existing laws
Following the announcement that Ten had appointed an administrator, the Australian reports that Mr Murdoch and Mr Gordon 'combined their shareholdings in a 22.47 per cent bloc as the basis for a financial restructure of the broadcaster. They will also explore ways to repay a $200m debt owed to Commonwealth Bank by December 23'. Mr Gordon (Birketu) is Ten's largest shareholder with 15%, Mr Murdoch owns 7.7% (Illyria). The report notes that although the joint venture between Mr Murdoch and Mr Gordon pushes their combined stake above the 20% threshold under the Corporations Act, the arrangement does not involve any financial transactions or trading of shares between the two parties. As such, it reportedly does not breach takeover and media ownership rules.

[Source: Australian Shareholders Association media release: ASA concerned by situation at TEN Network Holdings 13/06/2017; The AFR 14/06/2017; 15/06/2017; 15/06/2017; 15/06/2017; The Australian 15/06/2017; 15/06/2017; The SMH 15/06/2017; Network Ten Media Releases: Network Ten – Media Release from KordaMentha; Ten Administration Announcement; Ten Trading Halt Request; ASX announcements: Network Ten Holdings Ltd: Appointment of Voluntary administrators 15/06/2017; Change in substantial holding 14/06/2017; TEN Group enters voluntary administration 14/06/2017; Trading Halt 13/06/2017]

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