US Group Discovery Communications has walked away from its offer to buy the main assets of Ten Network Holdings in partnership with Foxtel the move comes as Netflix gets set to strip subscribers away from Foxtel, who has been keen to grab a share of the Ten Network so that they could bolster their sporting packages across both free to air and subscription TV networks.
The Financial Review claims that the news casts doubt over the future funding of Ten and over Foxtel’s efforts to be part of a consortium that has control of the third-placed commercial network. While Ten’s ratings have shown recent signs of recovery analysts still believe the loss-making company will run out of money within two years if it does not receive a cash injection.
Discovery is understood to have grown frustrated with the sales process and is surprised by the level of detail in local press coverage monitoring the high-profile auction of the network, which boasts four Australian billionaires on its share register.
Foxtel, which declined to comment, must now decide whether to walk away from Ten, find a new partner, or pursue the offer to buy a 14.99 per cent stake on its own – if the offer is available without Discovery’s partnership.
Ten executive chairman Hamish McLennan admitted in November that that investment bank Citi had been appointed to consider several potential takeover offers – most of them from US-based media and investment companies.
Discovery first joined forces with Foxtel, Australia’s pay TV monopoly, last year with an indicative offer to buy the company for 26? a share. Foxtel, which is jointly-owned by News Corp and Telstra, is limited under cross-media ownership rules to a 14.99 per cent stake in Ten so Discovery would have owned the rest of the company.
After conducting due diligence the consortium dropped its offer to 23? a share before Christmas amid concerns about Ten’s financial commitments, including its US output deals.
Discovery and Foxtel still had the highest offer for the company and were the favourite to win the auction but their efforts were hamstrung by opposition from Ten’s biggest shareholder, the Bermuda-based billionaire Bruce Gordon, who favours his own proposal to inject $70 million to $100 million into the company.
Lazard Asset Management, which owns just over 6 per cent of Ten, was also opposed meaning that any bid the Ten board recommended to its shareholders faced almost certain defeat.
As revealed by The Australian Financial Review, Discovery and Foxtel then put in a new offer to buy Ten’s “main undertaking”. The structure was designed to bypass opposition by Mr Gordon and Lazard because it would only need approval from 51 per cent of voting shareholders. The bid price was lowered to less than 20? a share.
However, the Ten board came back to Foxtel and Discovery last week with an alternative proposal, whereby the company would allow Discovery and Foxtel to inject capital into the business in return for an equity stake of 14.99 per cent each with board representation.
It’s believed the proposal, revealed by Street Talk, would have taken the form of a private share placement.
However, Discovery, which declined to comment, had set out to get full control of Ten’s main assets and is not prepared to accept the proposal.
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