Ten Network Holdings went into a trading halt this morning as it seeks to raise capital to shore up its balance sheet. It wants $225 million from investors at 20 cents a share, according to a report in The Australian Financial Review, which is a significant discount to yesterday’s closing price of 32.5 cents.
The nightmare intensifies for James Warburton, Ten’s CEO. It was just two months ago that Warburton reassured shareholders his company would not need another capital-raising this year (Ten raised $200 million in June).
And, the announcement comes ahead of Ten Network’s annual general meeting tomorrow in Sydney.
Here’s why Warburton must be one of the most pressured CEO in the country today.
Warburton’s problems began the minute he signed up for the top job with Ten. His decision infuriated his then employer, Kerry Stokes’ Seven West Media, which immediately tried to stymie his departure. The result was a miserable court battle in which Warburton was unable to take up the job for nine months – he quit on March 2, 2011 and started on January 1, 2012.
Ten’s chairman and major investor, Lachlan Murdoch, was forced to stay on in the temporary CEO role until Warburton had served out his “gardening leave”.
Things didn’t get better for Warburton once he finally joined Ten. The network’s performance since he took the reins has been miserable, with the broadcaster last month declaring a full-year financial net loss of $12.9 million. Revenue fell 13.7%.
The reason Ten has been doing so badly goes back to its ratings. Several heavily-hyped shows (Being Lara Bingle, The Shire) haven’t enthused audiences. In the television business, ratings affect advertising rates, and Ten’s advertisers are demanding a discount.
The company tried to sell its outdoor advertising business, Eye Corp, for $145 million to oOh!Media, which is owned by private equity company, CHAMP. But the deal stumbled and the final price was $113 million, $98 million of which was paid upfront.
The stock price has fallen by two thirds from 88 cents in January when Warburton took the job.
Foot in mouth
It doesn’t help that Warburton looks like he’s got little control of the situation. In October at Ten’s full-year results announcement, Warburton ruled out the idea of a second capital-raising, and said the company was not in danger of breaching its debt covenants, even without the sale of Eye Corp.
Today, forced by commercial necessity, he’s gone back on his word. It’s clear he expected things to have picked up by now, with some commentators accusing him of being in denial.
Big-name investors losing money
Ten’s share register is studded with big names: Lachlan Murdoch, who bought 8.9% of Ten for $128.3 million in 2011, plus Gina Rinehart, and James Packer. Collectively, these three have lost more than $360 million on their investments, according to a report in the Financial Review.
None of this trio is known for mincing words. Murdoch has publicly backed Warburton, while also saying that the company’s performance is “unacceptable”. It’s unlikely that the back room discussions are so supportive.