BREAKFAST DEALS: Ten's turn
Ten Network's move to seek credit puts the spotlight on other media companies, while ExxonMobil invests in Australian coal seam gas.
Ten Network, Seven West Media, Fairfax Media
Struggling Ten Network might be pre-empting a potential seizure in credit markets with its $200 million capital raising. But by doing so, the television network has turned the cameras on other companies, especially fellow media players, that might need to do the same in coming weeks and months.
Ten is going for an underwritten, three-for-eight accelerated renounceable entitlement offer at 51 cents a share, a 20.3 per cent discount on the last trading price. Citigroup is advising on the offer.
The television company said that about $140 million would be used to pay down debt, with the rest to improve cash flow and invest in locally produced content.
Importantly, Ten’s major shareholders Gina Rinehart, chairman Lachlan Murdoch, gaming billionaire James Packer and WIN Television owner Bruce Gordon have committed to the capital raising, which covers more than $80 million between them.
However, given that the stakes of the first three have lost more than 40 per cent of their value since they all bought in – and that’s before the discounted capital raising sucks more life out of the Ten stock – they’ll be hoping like hell that the move pays off.
There is some good news for Ten in relation to the elongated sale process of outdoor advertising business EYE Corp. CHAMP Private Equity’s oOh!media is currently conducting exclusive due diligence on the asset, expected to fetch in excess of $120 million.
As Business Spectator’s Stephen Bartholomeusz points out: "It has a $US125 million facility due for repayment next March which a sale of EYE Corp would address, but relying on that would entail some risk and force Ten into the position of having to sell under duress.” With some cash in the bank, Ten new chief executive James Warburton can dictate terms more easily.
On a side note, Ten also wants a piece of the next NRL broadcast rights deal with Murdoch. The Australian Financial Review reports that Murdoch accompanied Warburton and chief operating officer Jon Marquard to a meeting with former NRL boss David Gallop about the media rights.
Since Gallop’s sensational departure, the AFR reports that corporate adviser Greenhill Caliburn is taking over leadership of the rights negotiations.
Ten’s raising can be portrayed as a path to paying down debt, investing in programming, while improving its hand in the EYE Corp negotiations at the same time. But in the wake of a similar move by Brambles, Ten’s decision has turned attention back to the company’s that might be in need of capital.
The market is especially interested in media companies like Seven West Group and Fairfax Media, although Boral, Origin and Tabcorp have also been named as possible candidates. Qantas Airways boss Alan Joyce urged the market to cross his company’s name off that list just two days ago.
Commonwealth Bank analysts singled out market leader Seven, which has a substantial debt burden and recently suffered some share price pain courtesy of an unexpected slowdown in advertising revenue.
Like Qantas, Fairfax shares are at an all-time low, but the AFR indicates that sources believe a capital raising is not on the cards. However, The Australian reports that the Fairfax board is considering another writedown to the value of its mastheads as it prioritises digital over print.
It should be emphasised that Fairfax’s board recently held a strategy meeting to consider its options. Given the tone of the advertising market, the board has every right to throw around a few options not intended for public debate.
However, a writedown to its mastheads would probably spark another war of words with major shareholder Gina Rinehart, considering that her criticism of chairman Roger Corbett has centred on the falling circulation of those mastheads.
News Corp, ESPN Star Sports
While we’re on the media sector, Rupert Murdoch’s News Corp has assumed full control of Asian vehicle ESPN Star Sports.
News bought out the 50 per cent stake of joint venture partner Walt Disney Co after a 16-year relationship. The price of the deal was not disclosed.
ESS owns the rights to this year’s London Olympics, as well as the Formula One Grand Prix. This is in line with News Corp’s strategy of using sports events to drive its pay TV push.
News Corp deputy chief operating officer James Murdoch, in a rare controversy-free moment of late, said the purchase strengthens the company’s shift into emerging markets.
The deal is still subject to some regulatory approvals and News will continue to jointly manage ESS with Disney until the approvals are secured.
Dulux Group, Alesco Corporation
Alesco Corporation shares have jumped back into premium territory as speculators respond to renewed pressure on suitor Dulux Group to increase its $188 million offer.
While the garage door maker yesterday said it’s still expecting a full year loss of $13.9 million, Alesco expects underlying profit for the year to May to come in at $11.2 million to $11.4 million, up from previous guidance of $9.9 to $10.7 million.
The company’s shares jumped 4.15 per cent to $2.01, above Dulux’s $2 a share offer.
Alesco also outlined plans for a fully franked special dividend of 10 cents a share – a shrewd move that puts pressure right back on paints company Dulux.
BHP Billiton said from the beginning that its decision to merge its aluminium and nickel divisions is not the beginning of the end for the miner in those commodities. But it was expected to herald a rationalisation of that corner of BHP’s portfolio and this appears to be occurring.
A BHP spokesperson has confirmed that the company is considering offloading its 33.3 per cent stake in the Guinea alumina joint venture, which it acquired for $140 million in 2007.
"The JV partners continue to find a solution that would make this project executable,” a BHP spokesperson said in a statement. "Solutions include finding new owners, including for BHP Billiton’s share in the JV.”
America’s Global Alumina owns an equal share of the project to BHP, while Dubai Aluminium Co owns another 25 per cent and Mubadala Development Co owns 8.33 per cent.
With BHP Billiton chief executive Marius Kloppers and chairman Jac Nasser setting the tone for more caution from the miner, it makes sense for BHP to be looking to at the Guinea project. The site has a development and production increase planned.
Of course, the market is more concerned about its headliner projects, namely the Port Hedland iron ore expansion, Olympic Dam and the Jansen potash project.
Yesterday, Kloppers refused to commit to the miner’s year-end decision deadline for the Port Hedland outer-harbour development.
This has thrown the expansion of the other three projects into serious question, because Port Hedland was considered the best chance of getting up.
ExxonMobil, Ignite Energy Resources
US energy giant ExxonMobil has taken an initial 10 per cent stake in a joint venture aimed at unlocking Australian coal seam gas.
Exxon’s Esso Ventures is joining forces with Australia’s unlisted Ignite Energy Resources in the search for methane gas in Victoria’s Gippsland Basin.
The move is a small step in Australia’s direction where gas prices are not suffering the same over-supply pressures as in the US.
American energy majors have been exploring the idea of trying to establish export projects in North America to take advantage of international gas prices, particularly in growth hotspot Asia. Gas is fetching around $15/MMBtu in Asia, compared to America’s Henry Hub price around $2.50 MMBtu.
Just as much as US energy majors would love to sell their gas at Asian prices, Asian buyers would very much like to purchase gas at Henry Hub prices.
In The Australian this morning, Woodside Petroleum chief executive Peter Coleman says the energy company will rebuff buyers who try to push for prices not derived from the traditional oil-linked formula.
"Our gas is a premium LNG,” Coleman told the newspaper. "To us a Henry Hub price on our gas is an unreasonable request. If you want Henry Hub, go buy Henry Hub."
At the moment, they can’t and there’s no clear path to doing so yet. So US majors have a window to explore Aussie gas.
While we’re talking about big investors down under, American fund giant BlackRock has taken almost 9 per cent of ASX-listed Indochine Mining, which is a gold focused junior.
Meanwhile, as James Packer lurks, Echo Entertainment is taking 10 high-rollers to court – potentially former high-rollers – over $23 million in bad debts that has complicated the company’s defence of chairman John Story.
Packer is of course trying to unseat Story in favour of former Victorian premier Jeff Kennett. According to The Australia Financial Review, one of Echo’s shareholders suggested that Story resign not due to performance, but to settle things down for the good of the company.
The report indicates that Story was unmoved, adding that it would be the first step towards Packer securing the casino company without a takeover premium.
In aviation, Etihad has wasted no time increasing its stake in Virgin Australia to 4.99 per cent. As reported yesterday, the Middle Eastern airline is talking to the Australian Foreign Investment Review Board about upping its interest to 10 per cent.
Elsewhere, Australia Post has been revealed as the bidder behind the tilt at the business processing outsourcing business of Salmat, according to The Australian Financial Review. It’s a return to the spotlight for Australia Post boss and former National Australia Bank superstar Ahmed Fahour, after the government-owned company signed on telco giant Telstra Corp for its digital mail service.