I don't think it's over yet for shareholders. Court approval of 100% share transfer to CBS under s444GA looks very shaky to me. Ten solvency looks significantly better than prior s444GA cases based on cash flow or balance sheet tests. Also prior judgments on the issue of unfair shareholder prejudice state "a relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted"... if hypothetically the CBS proposal were to not proceed, Ten would not be wound up as there is another proposal on the table to keep it as a going concern (albeit with a more complex structure), and that happens to show equity has value. The pre-VA negotiation found large scope for cutting US programming costs (circa 50%), plus there’s been Govt licence fee relief, and new cost savings and revenue initiatives.
The HY Results presentation 27 April 2017 stated the business had "Net debt of $30.2m at 28 February 2017" and access to a $200m "shareholder guaranteed facility expires in December 2017". Yes they’ve drawn more since... along with the guarantee fees the reported total is up to $140m. But unfortunately the press continues to bandy about other large numbers and label as Ten 'debt' (eg CBS & Fox content)… from what I can tell these are actually off balance sheet, unsecured FUTURE program expenditure commitments... Korda himself said in late June that Ten was cash flow positive, which suggests current programming liabilities are being paid up on time and in full in the ordinary course of business.
Per AFR today [ CBS deal values Network Ten above $500 million ], Murdoch, Gordon & Packer (along with CBA) will have their total $140m secured debt paid at par before the second creditors meeting... if so they will not have a seat at the table. I guess Fox will be there fighting to defend their programming contracts.
Let's bear in mind, per bloomberg, CBS shares trade on an implied enterprise value of about 2.7 times sales revenue and about 12 times EBITDA, well above their peer group, and this deal would be very accretive very quickly for them ("We have been able to acquire it at a valuation that gives us confidence we will grow this asset" [not wanting to gloat much?]). They can and should pay up for Ten equity, but who will make them?
Wouldn’t count on FIRB blocking it, they’re supposed to focus on strategic national interest not shareholder interest, and the PM has already said welcome CBS. Anyway it could be very confused messaging – no to CBS the American company, but yes to Murdoch Jr who is American, Aussie and Pom (living in America); and Gordon, who is Aussie but resides in Bermuda? (per wiki).
(p.s. I haven’t been able to verify this anywhere else however AFR is currently reporting that CBS’ largest shareholder, Sumner Redstone, is Bruce Gordon's older brother. Small world hey?! Photo caption: “Bruce Gordon's older brother Sumner Redstone, pictured in his eighties, back in 2005. Redstone is the largest shareholder in CBS, Ten's putative owner.”)
Re recent talk of class actions, not sure yet precisely what will be the allegation/s and against whom. Small holders could probably all list five or six grievances that appear to add up to this major sh!tshow, but these still need to be tested. Directors and mgmt are surely checking their indemnities and insurance limits closely.
I will be looking to the Court to see through all of the fog and effectively force CBS to recognise fair value for shareholders, else blow up the deal and it goes back to Murdoch and Gordon.
Either way, the Murdoch empires depend on public market confidence and I suspect they will be quite concerned how this whole chapter is judged by history.
TEN Price at posting:
16.0¢ Sentiment: None Disclosure: Held
