News Corp-Backed Foxtel Takes 15 Percent Stake in Australia's Network Ten

Rupert & Lachlan Murdoch H 2014

News Corp and 21st Century Fox co-chair Lachlan Murdoch will retain his private stake in the third-ranked commercial broadcaster Down Under.

Australian pay-TV giant Foxtel and free-to-air broadcaster Ten Network Holdings have finalized a far reaching agreement which will see Foxtel take a 15 percent stake in Ten for $59 million (AU $77 million), while the two broadcasters will align their ad sales functions, and bring Ten into the subscription video on demand business via a shareholding in streaming service Presto.  

The deal values Ten shares 43 percent below their closing price on the Australian Securities Exchange on Friday, but it's an arrangement which Ten executive chair and CEO Hamish McLennan says will enhance Ten’s appeal to advertisers and will bring in considerable additional revenue.

Ten also aims to raise a further $59 million in a rights issue to existing shareholders at the same 15 cents a share price that Foxtel is paying. That rights issue will enable major shareholders including billionaire media owner Bruce Gordon, who has been opposed to an outright sale of Ten, to retain their shareholdings at their existing levels should they choose. Both Gordon and Foxtel are not permitted to own more than 14.9 per cent of Ten due to media regulations.

Foxtel is jointly owned by Rupert Murdoch’s News Corp. and  local telecommunications company Telstra Corp. Other Ten shareholders include News Corp. co-chair Lachlan Murdoch, who holds his 8 percent  stake though his private investment company Illyria Ltd, and billionaires James Packer, a partner in RatPac Entertainment and Gina Rinehart. They have indicated they will participate in the share offer, retaining their stakes in the broadcaster. Gordon is yet to reveal his hand.

The deal ends Ten’s nine month “strategic review," which at one point saw U.S. giants Discovery Communications and Time Warner entertain bids for the third-ranked commercial network, which is seeing a ratings resurgence this year. Ten’s prime time share is currently 18 percent up year on year, thanks to the success of franchises including I’m A Celebrity, Get Me Out Of Here! and MasterChef Australia.

Under the new deal, Ten has appointed the Foxtel and Fox Sports-owned ad sales group Multichannel Network (MCN) as its sales agent for both TV and digital inventory, effective immediately. Ten will become a 24.99% shareholder in MCN and have a seat on the MCN board.

Ten also gets an option for two years to take a 10 percent stake in the Presto streaming service, currently a joint venture between Foxtel and Ten rival the Seven Network.

In addition, Ten will reduce its board size to six directors with one Foxtel representative to join the Ten board.

With the exception of the MCN ad sales arrangements, the deal is subject to regulatory and other agreements. It's expected that Australia's antitrust watchdog, the Australian Competition and Consumer Commission, will particularly look at Lachlan Murdoch's position in the deal.

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 challenges of the ever-changing media and advertising landscape. We welcome Foxtel’s proposed investment and we are confident this proposal will drive value for all of Ten’s shareholders.

“By joining forces with MCN, Ten will gain new efficiencies, improved data capability and provide broader integration opportunities for its advertising clients,” he said. “The combined sales operation will provide advertisers a new way to reach consumers across all video content distribution platforms.”

Foxtel CEO Richard Freudenstein added: “We believe our investment in Ten is a win-win for Ten and Foxtel. With Foxtel’s local knowledge and expertise, and MCN delivering synergies and improved advertiser access, this proposal delivers the best long term solution for a revitalized, competitive and profitable Ten.”