Ten and Foxtel have announced their long-awaited deal that will see the pay-TV network take a 15 per cent stake in Ten with the free-to-air company set to buy a 25 per cent interest in Multi Channel Network.
Ten will also have an option for two years to become a 10 per cent shareholder in Presto, the streaming firm jointly owned by Foxtel and Seven West Media.
Foxtel will pay $77m for the Ten shares, valuing each share at $0.15c, with a Foxtel representative joining the Ten board.
The deal is part of a capital raising in which Ten will seek to raise $154m.
In addition to the $77m to be raised by Foxtel, Ten’ shareholders will have the opportunity to take part in a further $77m capital raising at the same price paid by Foxtel.
Three of Ten’s largest shareholders, Gina Rinehart’s Hancock Prospecting, James Packer’s Consolidated Press Holdings and Lachlan Murdoch’s Illyria have all indicated their intention to further invest and take up their pro-rata entitlements. That will represent 28 per cent of the 513.3m share to be issued under the offer.
One notable absentee from the list of subscribers is Bruce Gordon, Ten’s largest shareholder, whose 14.9 per cent stake will be diluted if he does not participate.
Gordon, owner of TV network WIN, has long opposed the proposed deal in favour of his own debt proposal that would have given him greater control over the embattled network.
The Ten board, meanwhile, will be reduced to six directors; three from existing major shareholders, two independent directors and one from Foxtel.
Ten executive chairman and chief executive Hamish McLennan said: “Today’s announcement represents an important milestone for Ten and the conclusion of the strategic review process initiated by the board last year.
“It positions Ten to drive long term value for shareholders.
“The board believes the agreements with Foxtel and MCN will materially enhance Ten’s business and better equip it to respond to the challenge of the ever changing media and advertising landscape.”
McLennan added that he hoped Bruce Gordon would support the deal “because they have been a good shareholder for Ten”.
Under the deal, Foxtel’s advertising business MCN and Ten Network have entered into a long-term agreement that will see sales house represent Network Ten’s television, catch-up and digital properties for advertisers. MCN will commence sales representation of Ten from September 1st 2015.
“Under the agreement with TEN, MCN will continue to simplify and evolve the television and online video trading model in Australia and position MCN as the first inclusion for todays ‘all video’ media plans,” said Anthony Fitzgerald CEO of MCN, who will continue to lead the business.
McLennan described the MCN agreement as a “step change” for the company.
“By joining forces with MCN, Ten will gain new efficiencies, improved data capability and provide broader integration opportunities for its existing advertising clients,” he said.
“The combined sales operation will give advertisers a new way to reach consumers across all video content distribution platforms.”
McLennan praised chief sales officer Louise Barrett and her team for an “outstanding job” in growing Ten’s revenue base, but it is unclear if Barrett or how many members of the current sales force will be retained.
He said the arrangement will bring together “two large teams” which will bring “efficiencies” but he refused to be drawn on the extent of any job losses.
“The advertising sales representation arrangement with MCN is a step change and will enable us to further leverage our growing audience with enhanced scale and a broader, more targeted and efficient offering,” McLennan said.
Under the arrangement, Ten will retain responsibility and control over all strategic functions including pricing and selling strategies and the setting of rate cards. MCN will take charge of all selling activities relating to TV and digital inventory and oversee the employment of sales and support staff.
Ten will pay a sales representation fee linked to Ten’s improvement in sales.
While the MCN deal is binding, other elements of the deal are subject to conditions and including clearance from the Australian Competition and Consumer Commission (ACCC) and the Australian Communications and Media Authority (ACMA) and Foreign Investment Review Board (FIRB).
The ACMA said in a statement: “The ACMA is aware of the recent announcement that subscription TV provider Foxtel intends to take up to a 15% shareholding stake in Network Ten.
“The ACMA is actively monitoring the situation and has no further comment to make at this stage.”
It is expected the deal will take three months to complete.
Foxtel chief executive Richard Freudenstein said the deal will create a “revitalised Ten”.
“We believe our proposed investment in Ten is a win win for Ten and Foxtel,” he said. “With Foxtel’s local knowledge and expertise and MCN delivering synergies and improved advertiser access, we are confident that this proposal delivers a robust long term solution for a revitalised, competitive and profitable Ten.”
Turning to the Presto option, McLennan said it gives Ten a prospective “seat at the [SVOD] table” but stressed the focus remained on its main channel and commercialising key programs.
“We think Presto is a terrific platform with lots of potential,” McLennan said. “But our focus has been on creating and launching shows on the main channel of Ten and monetising them and that is working for us.
“While we think SVOD has a way to go in terms of rationalising itself and playing out, we want to use our capital for continuing to fix Ten and that will give a better return to shareholders.
“If in 18 months or two years we feel it’s a good opportunity for Ten to play in the SVOD space we’ll do that.”
The CEO reiterated Ten’s desire to broadcast more sport but repeated his oft-used phrase that Ten would not “blow its brains out” by over-bidding.
Referring to the AFL and NRL rights, McLennan said: “If it’s too expensive we won’t play, if there’s a deal to be done we’ll look at it.”