Ten won't be a shoo-in for private equity

Things are finally looking up for Ten Network, and if the latest reports are to be believed, private equity firms are circling and readying to pounce in nice time for the uptick, sweeping in to maximise exposure to the recovery.

New York hedge fund Anchorage Capital Group has approached private equity group Providence Equity Partners about exploring a joint bid, according to the AFR.

Have they left it too late though? In this instance, the standard private equity play of buy low and sell high may come back to bite.

Ten's shareholders are not your garden variety disgruntled investors looking for the first available exit. Here we have Australia's wealthiest alumni: Lachlan Murdoch, Gina Rinehart, James Packer and Bruce Gordon.

Shares in Ten were trading just above this week's record low of 19c on Friday, even with the takeover headline. The stock has dropped from over $1 over recent years, so the average outlay for existing shareholders will be much higher than any offer close to today's share price, even accounting for a premium. Lachlan Murdoch notoriously paid $1.50 a share for half of James Packer's stake in Ten in 2010.

 “Look at the shareholders -- do you think any of them are short of ego? Why would any of those people sell out at a massive loss?” said one shareholder.”

Even non-celebrity shareholders would not be “faintly interested” in an offer near 20 cents and would prefer to “hunker down and take their chances,” he argued.

It's clear Ten is bouncing back after its $285 million loss a year ago, and chief executive Hamish McLennan has said the broadcaster is on the path to ­recovery for the first time since he took the helm 18 months ago.

Ten revealed on Thursday it had shaved its latest full-year net loss to $168.3 million. Ten's annual revenue declined 4.3 per cent while it lost $79.3m before interest, taxes, depreciation and amortisation, prompting Ten chief executive Hamish McLennan to say the network had “turned a corner” and management have “the tiger by the tail and we're taming it.” And analysts at UBS agree, saying a stronger ad market and lower costs could swing Ten's EBITDA into positive territory this year.

Ten plans to leverage recent ratings success with The Bachelor, Family Feud and the Big Bash cricket league in negotiations with advertisers, and future hope is pinned on I'm A Celebrity ... Get Me Out of Here! And reality TV show Shark Tank.

Invigorated by success in snaring the rights to Big Bash and V8 Supercars, Ten will also vie for AFL TV rights, a billion-dollar deal in which Kerry Stokes' Seven and Fox Sports are front­runners unless Ten is able to form a partnership to boost its buying power.

Conventional thinking has it that both the audiences and advertising markets for the networks are likely to shrink and fragment under the continuing impact of pay television, their own digital channels and the growing threat of IPTV.

But a contrarian view is that just one good program on one night can muster 15-to-20 per cent of Australian viewers, something the fragmented web cannot do.

“There is hardly an internet site that can deliver that in a week,” said the advertiser.

While a takeover of Ten may never come to fruition, shareholders can take heart that with private equity circling, it's as good a sign as any that the worst is indeed over for Ten.