Lachlan Murdoch and Bruce Gordon form joint venture in a bid to restructure and save Ten

Bruce Gordon and Lachlan Murdoch – currently two of Ten’s three main shareholders – will “work together exclusively to facilitate the potential formation, negotiation and implementation of a Restructure Proposal” for the network, according to documents lodged with the ASX today, but the pair’s private investment companies Birketu and Illyria have insisted they are not launching a takeover bid.

Lachlan Murdoch speaking at Mumbrella360 in 2014

A letter sent to the director of Murdoch’s Illyria, Siobhan McKenna from Andrew Gordon, the director of Bruce Gordon’s Birketu was lodged with the ASX today. The letter is dated 9 June, before Ten’s trading halt, which was announced on 13 June, and the announcement the network was in administration, which occurred today.

In it, Andrew Gordon proposes the two companies work together to reduce the risk of the two investment companies “being exposed to significant liability under their respective guarantees together with a complete loss of their respective investments in Ten’s equity”.

The letter refers to Ten’s current $200m debt facility with the Commonwealth Bank of Australia, which expires on 23 December, and details the risks for the billionaires should the network default on the loan.

“As you are aware, over the last three and a half years, Ten has reported losses of $869.9 million and most recently reported a loss of $232.2 million in respect of the half year to 28 February 2017. The Ten board has publicly stated that in order for Ten to meet its repayment obligations under the Existing Facility on its expiry, Ten needs to secure an amended or new borrowing facility with extended maturity and an expanded size of approximately $250 million, the provision of which will be reliant on sufficient further guarantees being provided by existing shareholder guarantors and/or new financiers,” the letter said.

“In the event of a default by Ten of its obligations under the Existing Facility, there is a risk of Birketu and Illyria each being exposed to significant liability under the respective guarantees together with a complete loss of their respective investments in Ten’s equity. In such circumstances, given the commonality of the parties’ interest in Ten as shareholder guarantors of Ten’s debt, it may be in the parties respective commercial interests to consider whether a proposal could be formulated and agreed between Birketu and Illyria under which Ten’s existing secured debt would be repaid and any guarantee support would be removed over an appropriate period (Restructure Proposal).”

The letter noted the terms and conditions of the agreement had not yet been finalised, but it did not signify a takeover bid.

“This letter records the basis upon which Birketu and Illyria have agreed to work together exclusively to facilitate the potential formulation, negotiation and implementation of a Restructure Proposal. The terms and conditions of any Restructure Proposal are yet to be agreed between the parties and there is no assurance that any Restructure Proposal will be made, and if any will be successful.

“For the avoidance of doubt, this letter does not constitute a proposal on the part of Birketu or Illyria or any entity either of them may control to make a takeover bid for Ten shares for the purposes of section 631 of the Corporations Act.”

The letter also detailed the companies’ obligations should Ten be placed into administration – which happened today.

“In the event Ten defaults on its obligations under the Existing Facility, including as a consequence of one or more Ten group entities being placed into external administration, then subject to all applicable laws (including the Broadcasting Services Act 1992 (Cth) (BSA)), each party must use all reasonable endeavours and commit necessary resources (including management and the resources of advisers) to develop, and once agreed, seek to negotiate and implement any Restructure Proposal.”

Under the agreement, neither party will be able to directly or indirectly seek out a buyer for Ten, unless it is an agreed part of the plan, the letter explained.

“Other than as part of any Restructure Proposal or with the prior consent of the other party, each party must not and must procure that each person who ultimately ‘controls’ (as defined in the Corporations Act) the party and any entity ‘controlled’ by such person (Related Parties) do not directly or indirectly, solicit, initiate or encourage an offer, proposal, expression of interest or enquiry to or from a third party under which a third party will:

“i) directly or indirectly acquire or merge with Ten, its assets or any of its subsidiaries, including by way of private treaty sale, joint venture, takeover, scheme of arrangement or deed of company arrangement

“ii) acquire ‘control’ (as defined by the BSA) of Ten or any of its commercial television broadcasting licences

“iii) provide debt or equity finance to Ten or any of its subsidiaries or refinances or restructured the Existing Facility, (Competing Proposal) or that may reasonably be expected to encourage or lead to a Competing Proposal (Potential Competing Proposal) even if the Competing Proposal or Potential Competing was not directly or indirectly solicited, invited, encouraged or initiated by the party on any of its Related Persons.”

The combined shareholding power of the two companies is now 22.47%, according to the ‘Notice of change of interests of substantial holder’ announcements posted to the ASX. The notice shows the change occurred on 9 June, but was signed by company secretaries Daniel Collis (Birketu) yesterday and Linda Norquay (Illyria) today, before being posted to the ASX.

Previously Bruce Gordon’s Birketu had a 14.96% voting power and Murdoch’s Illyria had 7.68%.

In the documents posted to the ASX today, Michael Parshall, partner at law firm Allen & Overy, acting on behalf of Illyria, said “Illyria and Birketu may be considered associates of one another”.

“In the event an association has arisen, the parties’ respective voting power in Ten will be aggregated for the duration of the associate relationship, which has been reflected in the enclosed substantial holding notice,” Parshall said.

Currently, Bruce Gordon, the owner of WIN Corporation and co-chair of News Corp, could not launch a takeover bid of the network due to the reach rule, which prevents single television networks from broadcasting to more than 75% of the population.

Murdoch, the executive chairman at Nova Entertainment and executive co-chairman of News Corp and 21st Century Fox, would be held back by the current two-out-of-three rule which prevents a company owning a newspaper, TV network and radio station within the same market.

Industry sources have speculated the joint venture signals News Corp’s intentions to take a more significant stake in Ten with Foxtel, which is half-owned by News Corp, already controlling a 14% stake in the network – but the longer-term ambitions of the joint venture are yet to become clear.

McKenna, the director of Illyria, recently resigned from her position representing Murdoch on the Ten board and took on the new role of group director of broadcasting at News Corp.

Ten could not comment on the news, as the announcements were posted to the ASX by Illyria and Birketu.

The Australian Communications and Media Authority (ACMA) also couldn’t comment on the wider implications of the joint venture and its timing.

Minister for Communications and the Arts Mitch Fifield today used the news of Ten going into voluntary administation to push for support for the government’s proposed media reforms – which include the abolition of both the reach and two-out-of-three rules.

“The Turnbull government and industry leaders have been warning for some time that Australia’s media industry is under pressure and needs reform. While the government has sought to progress important reforms such as the abolition of the two-out-of-three rule since March 2016, Labor’s response has been to frustrate and delay their passage,” he said.

“They have displayed a callous disregard for the impact their actions are having on an industry that desperately needs reform. Labor’s gamesmanship has limited the options for organisations like Ten.

“Today I call on Bill Shorten and Labor to abandon their politically motivated opposition and show they care about the Australian media industry and the men and women whose livelihoods depend on it.”

Fifield said the news of the extent of Ten’s troubles was a “wake-up call” to opponents of the proposed law reforms and said the current state of affairs was concerning.

“This is a difficult and stressful time for Ten’s staff and their families who are facing an uncertain future. That a major Australian media organisation is in such difficulty should be a matter of concern,” he said.




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