At Channel Nine: Who doesn't want to be a millionaire?
The heavy losses will be led by Nine chief executive David Gyngell, who paid $1.2 million for his shares in late 2007.
Mr Gyngell was instrumental to the deal that saved the media group from collapse late last year, but it will have the unintended effect of crystallising millions in losses for Nine's management team later this month.
According to documents lodged with the securities regulator, the cleanout of the company's executive share plan, via a buyback, is needed ahead of the proposed capital restructure that will hand the company to creditors owed $3.2 billion.
"The directors of the company have considered the position of the members of the company in proposing the resolution to approve the buyback and consider that it does not materially prejudice the company's ability to pay its creditors," Nine said in a notice of the meeting in December last year to approve the buyback.
Nine would not offer comment on the fate of the share plan, neither would Nine's current owner, private equity firm CVC Asia Pacific. The shares have been worthless for years thanks to Nine's poor performance. This is despite attempts to revive the executive share program in 2009.
When CVC Asia Pacific took control of Nine in 2007 - led by its managing partner Adrian MacKenzie - it insisted that Nine's management team have "skin in the game", according to Nine executives who spoke to BusinessDay anonymously.
For most of the 40 top executives at Nine that originally participated in the program, this meant taking mortgages on the family home - ranging from six to seven-figure sums - to finance the share acquisitions, which totalled $25 million.
Half of this amount was financed out of their own pockets, the other half was provided as loans from Nine.
The loans were non-recourse so the executives were not liable for them when the shares were effectively made worthless within a year of the plan being implemented as the media downturn hit.
One executive quipped he was effectively paying to work at the company.
This was not meant to be how it worked.
CVC Asia Pacific told the media group's executives of how their counterparts at Pacific Brands profited from a similar share plan when the private equity group acquired the iconic clothing manufacturer.
CVC's $1.9 billion investment in Nine is also worthless but it will receive a payment in return for its co-operation with the restructure that will hand Nine to its debt holders later this month following approval of the deal.
When the program was implemented in December 2007, Ian Law, Mr Gyngell's predecessor as chief executive, acquired $5 million worth of shares, half of which was funded out of his own pocket. He departed in November 2010 when plans to take the company public again, failed.
It is understood that if Mr Law was deemed to have retired he would have received back the $2.5 million he paid for the shares - if not he will have walked away with nothing from his investment.
The 11 executives still participating in the plan are all that remain from the original 40 after the sale of assets, as well as departures and retirements from the business.
Frequently Asked Questions about this Article…
Nine executives who paid a collective $3.27 million for shares under the executive share plan will soon trade them in for $1 per person (a total of $11) as part of a buyback. The cleanout via the buyback is being done ahead of a proposed capital restructure that will hand the company to creditors owed about $3.2 billion.
The biggest losses will be led by Nine chief executive David Gyngell, who paid about $1.2 million for his shares in late 2007. Former CEO Ian Law also acquired $5 million of shares (half funded personally) when the plan was implemented.
Nine said its directors considered the position of company members and proposed the buyback because they believe it does not materially prejudice the company’s ability to pay its creditors, and the buyback is needed ahead of the planned capital restructure.
CVC Asia Pacific took control of Nine in 2007 and pushed for management to have “skin in the game.” CVC’s $1.9 billion investment is described as worthless in the article, but CVC will receive a payment in return for cooperating with the restructure that hands Nine to its debt holders.
Most of the roughly 40 top executives who took part financed share acquisitions (totaling $25 million) partly with mortgages on family homes (six- to seven-figure sums). Half the amount was paid from their own pockets and the other half was provided as loans from Nine that were non-recourse.
Non‑recourse loans meant the executives were not personally liable for the loans if the shares became worthless. In this case, when the media downturn hit and the shares lost value, executives were not forced to repay those Nine-provided loans out of personal assets.
Originally about 40 top executives participated in the program. After asset sales, departures and retirements, 11 executives still participate in the plan and are the ones affected by the buyback described in the article.
The proposed restructure will hand Nine to its creditors owed roughly $3.2 billion, a move that effectively wipes out equity value for investors and has already left the executive share plan holdings effectively worthless. The article notes the buyback is intended to clear the executive plan ahead of that creditor-led restructure.
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