Mayne: CBS has Ten in the bag, now for some Lachlan Murdoch accountability?

It looks like game, set and match to CBS in the race to seize control of Ten Network Holdings on the cheap, despite the latest round of extraordinarily self-serving utterances in the Murdoch press.

Highly paid business commentator John Durie is not normally a Murdoch fanboy, but his attempt to paint CBS as conflicted in The Australian today was just embarrassing.

If you want to talk conflict of interest, it is Lachlan Murdoch who is wearing far too many hats at Ten as a supplier, shareholder, financier, former chair, former CEO, board controller, advertising sales agent, competitor and bidder.

How can Durie possibly argue that CBS can’t vote at the September 12 creditors meeting because it is conflicted, yet 21st Century Fox can, even though its co-chairman is the rival bidder? Is that why there is talk of only Bruce Gordon challenging the CBS bid in court?

Whilst Nine Entertainment Company chugs along with an enterprise value of $1.4 billion, CBS will pick up Ten for a relative steal of about $200 million.

Shareholders will get nothing, but it’s hard to mount an argument that they should receive anything when even the ATO is taking a haircut as a creditor and the second largest creditor, 21st Century Fox, stands to receive just $3.4 million for its whopping $376 million creditor’s claim. Why should shareholders leap ahead of creditors when we all know equity ranks behind debt in work-out situations?

The second administrator’s report paints a comprehensive picture over 215 pages of why the business went broke and how CBS will be near impossible to dislodge. Mark Korda explained it all very clearly on ABC radio’s AM program this morning.

With CBS having already spent $143 million taking out the CBA and the three wealthy loan guarantors — James Packer, Bruce Gordon and Lachlan Murdoch — the men who precipitated Ten’s descent into premature administration have suddenly lost most of their power.

Three months ago, the triumvirate — along with Foxtel — had effective voting control over the Ten board through their combined 45% stake in the company. But then Packer walked and the other two panicked, fearing their dwindling personal assets were on the line if the $200 million CBA credit facility was fully drawn.

Instead of working constructively with the board, KordaMentha outlines in great detail how Gordon and Lachlan Murdoch jointly threatened to sue the directors on June 13, triggering the insolvency event that cost them control.

The specific break down in relations appears to have been the decision by the board to hire investment bank Moelis. KordaMentha has produced a very useful chronology of events on page 37 of their report.

On May 2 this year, James Packer formally told the Ten board he wouldn’t be extending his guarantee beyond the expiry of the $200 million CBA facility in December 2017.

The loan still wasn’t ever half drawn at this point so the board still had plenty of time to draw down, restructure and then refinance.

Gordon and Murdoch then wrote to the board on May 12 saying they were doing “productive” work and a term sheet outlining the future arrangement would be forthcoming.

However, when nothing materialised by May 25, the board appointed Moelis to solicit for potential third party financiers.

Working sneakily through the Queen’s Birthday long weekend when ASX trading was closed, Gordon and Murdoch then pulled the plug on any refinancing at 6.43pm on Friday, June 9 and then backed this up with threats to personally sue the directors at 9.13pm on the Monday June 12 public holiday.

That communication was the insolvency event that ensured creditors would take a haircut and shareholders would lose the lot. It didn’t need to happen given that Moelis and the executive team were both making good progress on a restructuring and refinancing plan.

With more than $2 billion having been lost during six years of related party deals, conflicts and dysfunction, it is farcical for Bruce Gordon and Lachlan Murdoch to now claim they are the shareholders’ friend.

KordaMentha and receiver PPB Advisory, to their credit and with ASIC watching on closely, played a straight bat, conducting a genuine auction for the Ten business through Moelis.

Murdoch and Gordon thought they could bully the politicians to change the media laws and scare off all rival bidders.

It worked to a point, with 53 parties sent a teaser and confidentiality agreement, although this only translated into two final bids from the two biggest creditors: CBS and the Murdoch-Gordon interests.

Murdoch and Gordon then thought they could lodge a bid that totally shafted the biggest creditor, CBS, but left residual shareholders with 20% of not very much equity in an over-geared listed vehicle.

However, we’ve all seen this movie before with Murdoch-backed capital raising after Murdoch-backed capital raising that did nothing to stop Ten’s inexorable descent into insolvency. And why would CBS vote to shaft themselves?

The time has now come to discard the myriad conflicts and related party transactions that have bedeviled Ten ever since James Packer and his old mate Lachlan Murdoch thought it was smart to spend $280 million buying an 18% stake without making a full bid to all shareholders at a time when they valued the whole business at more than $2 billion.

Despite more than $400 million of subsequent capital raisings, it has now been sold in a fire sale for about $200 million to CBS with investors losing the lot. It’s good for diversity so let’s get on with the deal.

Rather than spoiling the CBS party, Lachlan Murdoch should be coming under great pressure over this debacle. He’s squandered more than $200 million of his father’s inheritance and allowed competitor CBS into News Corp’s home turf.

The other half of the Murdoch empire, 21st Century Fox, will lose tens of millions of dollars in programming fees and Foxtel will no longer earn commission selling ads for Ten.

If I were CBS, Lachlan’s resignation as co-chairman of News Corp and 21st Century Fox would be a precondition of any new programming deal and supply arrangement with Ten and Foxtel.

If Lachlan wants political assistance at this point through Scott Morrison and the FIRB process, he should reflect on the miscalculation of unleashing mad Andrew Bolt on Malcolm Turnbull every night, along with the foolish over the top “slumlord” attacks on Senator Nick Xenophon in The Australian during last year’s federal election. Politicians remember these things!

The Ten employees will also vote overwhelmingly for the CBS takeover because they don’t want to be merged with Sky News or further tainted with the Murdoch brush.

Small shareholders are unlikely to rally behind Murdoch and Gordon given their record of failure at Ten and the ongoing governance nightmare within the Murdoch camp with their gerrymanders, poison pills, stacked board and excessive family pay rip-offs.

Indeed, there’s a risk that Australia’s ability to resist the Murdoch march could galvanise the British government to block Fox’s bid for Sky PLC.

Now that Fox News has kicked itself out of Britain, perhaps the British government should go further and flip the equation, requiring Fox to sell its existing 39% stake in Sky PLC because the Murdochs are not fit and proper to run a television business in a democracy.

*Stephen Mayne is a volunteer director of the Australian Shareholders’ Association but these are his personal views.