Market Insight

Foxtel investment improves outlook for Network Ten

June 15, 2015  | Subscribers Only


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Australian pay TV service provider Foxtel has entered a binding agreement to acquire a 15% stake in commercial free-to-air (FTA) broadcaster Network Ten Holdings (Ten) for AU$77 million. Foxtel will become a shareholder in Ten via an issuance of new ordinary shares at a price of AU$0.15 per share, an 11 cent discount on the closing share price of AU$0.26 on 15 June 2015, a day before the deal was announced. A Foxtel representative will join Ten’s Board as part of the agreement. Other arrangements under the deal include:

  • Ten will become 24.99% shareholder in Multi-Channel Network (MCN), Foxtel’s advertising sales arm.
  • MCN will be appointed sales representative of Ten’s television and digital inventory.
  • Ten receives a two-year option to acquire a 10% shareholding in subscription video on-demand (SVoD) service Presto, a joint venture between Foxtel and Seven West Media.

Subject to regulatory approval, Ten anticipates the deal to be completed in October 2015.

Foxtel is Australia’s leading subscription television service, co-owns MCN with Fox Sports and is backed by News Corporation (50%) and Telstra (50%). Ten is one of three commercial FTA television broadcasters in Australia. Its television revenue declined 4.2% in the financial year ending 31 August 2014, compared with a year earlier. Television revenue continued downward in the six-months ending February 2015, albeit at a slower rate of 2.1% y-o-y, largely due to the successful launch of new shows which improved the company’s share of the television advertising revenue market. 

Our analysis

The agreement is a likely win for Foxtel and Ten. Foxtel extends its portfolio and acquires a stake in Ten at a 42% discount per share compared with the existing market price. The deal enables Foxtel to target a combined audience of more than 10 million viewers each week. Foxtel’s pay TV business reaches 2.8 million customers whereas Ten reaches approximately 8 million people in the country every week on the back of its hit shows such as MasterChef and Shark Tank.

Foxtel’s investment also builds greater investor confidence in Ten. The long-awaited deal will help Ten raise new capital to reduce debt and create financial flexibility. In addition to Foxtel’s AU$77 million injection of funds, Ten’s existing shareholders will have the opportunity to participate in a further AU$77 million raising at the same price per share as Foxtel, thereby resulting in a capital raising of up to AU$154 million. This may prove critical to Ten’s survival. Its advertising revenue is in decline, falling 31% over the past five years, whilst its market share in the commercial FTA television market has dropped from 29.2% in 2009 to 20.3% in 2014. Seven Network leads the market followed by the Nine Network.

The deal is also expected to present other benefits to Ten. The integration of MCN’s expertise is likely to smooth Ten’s advertising sales, gain new efficiencies, improve data capability and provide broader integration opportunities for its advertising clients. In addition, the deal provides Ten the option to get involved in the SVoD business. FTA television in Australia is under threat from the burgeoning supply of SVoD services in the country. Rivals Seven Network and Nine Network already have interests in the Australian SVoD market via Presto and Stan respectively. Stan is owned by StreamCo, which is a joint venture between Fairfax Media and Nine Entertainment (owner of Nine Network).

 

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