Time Warner Reportedly Drops Out of Auction for Australia's Ten Network

Discovery Communications CEO David Zaslav

A joint bid by Discovery and Foxtel is expected to offer existing shareholders a chance to stay invested in the broadcaster

Discovery Communications and Australian pay TV giant Foxtel look like the frontrunners in the auction for Australian broadcaster Ten Network Holdings after Time Warner and private equity group Hellman & Friedman dropped out of the bidding process, according to a report in the Australian Financial Review.

Time Warner didn't immediately comment on the report. Discovery has consistently declined to comment on the auction.

Discovery and Foxtel — which is jointly owned by News Corp and telecom giant Telstra Corp. — are planning to offer a cash-and-stock deal for Ten, the country's third-ranked commercial broadcaster and the home of Masterchef Australia and the upcoming I'm a Celebrity Get Me Out of Here Australia, the newspaper report said.

Read more Rupert Murdoch Confirms Foxtel Interest in Australia's Ten Network

In a bid to win over Ten's largest individual shareholder, Bruce Gordon, a former president of Paramount Television International, they are looking to create two classes of shares in a new privately held entity, with existing shareholders getting some shares in one of the classes to allow them to have a stake in any upside in the business.

Gordon has said he does not want to sell his 14.9 percent stake in the broadcaster but wants to "stay [a shareholder] and look to the future."

The AFR report also mentioned Haim Saban's Saban Capital Group and a duo of financial firms as possible bidders for Ten.

Alongside other major shareholders, including News Corp co-chairman Lachlan Murdoch and RatPac founder and gaming mogul James Packer, Gordon also has underwritten $200 million in financing to the network aimed at boosting its programming.

Part of the Discovery and Foxtel offer for Ten reportedly includes plans to merge Foxtel's ad sales force with Ten's internal ad sales group to create a company that would sell more than $870 million a year (AUS $1 billion) in Australian TV and digital advertising, which would allow the merged entity to compete on equal footing with commercial broadcast rivals Nine and Seven, according to the AFR.

Read more Time Warner Reportedly Mulling Bid for Australia's Ten Network

Other financial details of the Discovery/Foxtel bid weren't disclosed. The paper reported that Time Warner had wanted to offer 25 cents a share for Ten, a discount to its current market rate of 27 cents. That would have valued Ten at $685 million.

According to the AFR, Ten and its investment bank Citi have set a deadline of Dec. 2 for interested parties to make indicative offers, but the report quotes several sources close to the process as saying it's still possible that no deal will happen.