Playing it safe keeps Ten afloat

Ten's decision to embark on a capital raising while negotiating the sale of EYE Corp was seen by some as too conservative. But with the sale on shaky ground, Ten's caution looks more justified than ever.

Had it not been for a decision in June that some thought overly conservative Ten Network might well be contemplating the same fate as its rival Nine Entertainment has been wrestling with in recent months.

That decision – to raise $200 million in an underwritten equity issue – was made during a period in which Ten was negotiating the sale of its outdoor advertising business, EYE Corp, to a rival owned by the CHAMPS private equity group.

There were those who thought the sale of EYE Corp, for up to $150 million, would provide the capital Ten needed. As it happened, Ten announced the sale of EYE Corp in July, for cash proceeds of $120 million and further deferred consideration of $25 million in three years’ time.

Today Ten announced it had received a formal notice from CHAMPS’ Outdoor Media Operations ‘’purporting’’ to terminate that agreement. It also said that while it was reserving its legal position, TEN and Outdoor Media remained in discussions with the aim of agreeing amended terms.

Back in July, Ten shares were trading at about 50 cents. Today they were hovering around 30 cents. It is disconcerting to imagine the impact of today’s announcement had Ten not raised that capital in June. As it is, even if it can revive the sale on reduced terms, there are those in the market who believe it will be forced to raise more equity.

What Ten did in June was prudent, which has now been underscored by the problems with the EYE Corp sale.

When it announced its first half results, for the six months to end-February, Ten disclosed a dive in earnings from $54.6 million to $14.8 million. When it raised the $200 million of new capital it revealed its core television revenues were down 12 per cent in the March quarter and for the nine months to May and indicated they were still deteriorating.

There are analysts who believe Ten could earn as little as $10 million in the second half.

The performance of its current schedule and the ratings it has generated doesn’t auger well for next financial year either and its chief executive, James Warburton, has made it clear that turning the network around will take at least several years and require a significant investment in new programming.

The capital raising and the EYE Corp sale were, together, going to give Ten both financial stability and the capacity to fund its turnaround despite the pressure on its earnings. If the EYE Corp sale can’t be resuscitated at an acceptable price there isn’t going to be much of a margin for error. Certainly there would be a very big questionmark over its ambition of being a player in the contest for the remaining major sporting rights and constraints on its ability to refresh a programming slate that has bombed.

Without that capital raising (and, perhaps, the presence of a cluster of moguls on its register and within its boardroom) Ten might have started to experience a replay of the Nine experience, with the distressed debt vultures hovering.

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