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Ten Network may be worth more dead than alive, but normal rules don’t apply

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On the face of it, Ten Network is probably worth more dead than alive. At least if you are one of the three moguls – Lachlan Murdoch, James Packer and Bruce Gordon – who have guaranteed the network’s debt and in whose hands its future rests.

The most obvious way to save the company is to push it into the hands of a corporate undertaker. The billionaire trio would effectively take ownership of the assets, which would be rinsed of onerous and expensive legacy program liabilities and at least have some hope of making some (albeit modest) profit.

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Ten Network reports $232 million loss

The free-to-air broadcaster is pinning its future on securing a new $250 million loan.

As a number of investment bank analysts declared this week: The company is uninvestable. The $200 million loan Ten has from the Commonwealth Bank would never have been approved without guarantees from its wealthy backers.

But the rules of normal financial practice don’t apply to Ten, for two reasons.

The first is that Rupert Murdoch and various parts of his empire have their tentacles around Ten, so it will be forced to survive. It’s a special case and there is nothing normal about it.

Ten is operated in tandem with its 15 per cent shareholder, Foxtel – owned half by News Corp and half by Telstra. Foxtel’s specialist advertising offshoot MCN looks after Ten’s advertising and marketing activities.

Ten potentially holds the key to Foxtel getting around Australia’s onerous anti-siphoning rules, which block the pay TV company’s access to some potentially lucrative sporting events.

Murdoch’s American TV network Fox is one of Ten’s largest offshore suppliers of programs – one of the onerous contracts that has helped land Ten in the financial quagmire in which it now finds itself.

On the face of it, Ten is probably worth more dead than alive. But the usual rules of finance don't apply for the ... On the face of it, Ten is probably worth more dead than alive. But the usual rules of finance don’t apply for the network and its mogul backers Lachlan Murdoch, James Packer and Bruce Gordon. 

And of course Lachlan Murdoch has received his portion of the near $30 million that Ten has paid its mogul backers for guaranteeing the $200 million loan.

Thus Ten has a value to the Murdoch empire well beyond that of its dwindling shares.

The second reason has more to do with Lachlan Murdoch himself, and the reputational damage that goes with his move six years ago to corral Packer into taking an investment in Ten on the basis that it would turn around for a tidy profit.

Lachlan Murdoch became chairman and at one stage was also chief executive of the TV broadcaster. Ten’s demise reflects on him beyond just being a disastrous investment decision.

History now records that his optimism was misplaced as various attempts to restructure programming and its balance sheet could not offset the bigger forces in the decline of free-to-air television.

Commonwealth Bank’s $200 million loan was approved because of the guarantees from these wealthy individuals and it’s arguable that CBA’s credit risk department should extend and increase it by another $50 million (when it falls due at the end of the year), even with guarantees.

It will now fall to CBA chief executive Ian Narev to make the call. He will undoubtedly be weighing up the downside of aggravating the Murdochs, Gina Rinehart –  another one of Ten’s large shareholders -, Packer and Gordon.

Billionaires in a pickle

But what about the other two loan guarantors, Packer and Gordon?

It’s pretty clear that Packer is in no mood to continue his long association with media – least of all Ten. If the talk is right, he’ll stay with the triage troika. He is understood to have had his 8 per cent shareholding on the market for a while – and surprise, surprise – there are no takers.

But just like everyone else, Packer has to keep in mind the downside of making an enemy of the Murdochs. He needs to offer them a bit of sugar in exchange for opting out of the Ten rescue, and it has been reported that he will forgo a part of the fee due to him for the existing loan guarantee.

As for WIN television owner Bruce Gordon, he has now become accomplished at throwing away good money after bad in the free-to-air television market. He has 15 per cent on Nine Entertainment and Ten, plus his regional TV assets – which he expanded this year by acquiring Southern Cross Austereo’s Northern NSW TV stations for $55 million.

Under the current media ownership rules he can’t take a larger shareholding in Ten – so he is in a pickle if Ten defaults on its loan.

The same rules also preclude Lachlan Murdoch from increasing his stake in Ten given he is co-chairman of News Corp.  (The media ownership rules are regularly under threat of being revised – but nothing ever happens).

Thus Ten will live to fight another day – propped up by those with vested interests.

The debt commitment can will be kicked down the road, the government will provide a bit of relief by cutting the licence fees and the company will undertake another cost cutting and restructuring exercise and attempt to renegotiate with the US program suppliers.

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