What the new CBS deal with Ten deal means for Lachlan Murdoch

CBS is steadily moving closer to winning control of the Ten Network and regardless of the huffing and puffing from the Murdochs and 88-year-old Bruce Gordon, the focus should be shifting to the woeful performance of Lachlan Murdoch in this affair. 

The US media giant cleverly upped its offer to unsecured creditors by $8 million this morning, ensuring they approved its bid and removing any doubt as to whether it is the superior arrangement.

More than 200 people filled the room at The Marriott at Sydney for the 11am second creditors meeting and journalists were allowed in to take photos and film before being kicked out when the meeting started.

High profile Ten journalist Hugh Riminton, one of three employees on the Ten creditors’ committee, was in the meeting representing a large number of employees who were expected to vote in favour of the CBS deal by proxy. They don’t want to see big job losses through a merger with News Corp’s Sky News operation.

Ten’s long-suffering shareholders are out of the equation and the Australian Shareholders’ Association did not have a representative inside or outside today’s meeting.

The Murdochs don’t lose too many battles for trophy media assets, especially in their home market, but the loss of Ten to CBS will be a bitter blow, particularly for eldest son Lachlan, whose credibility has been severally undermined.

At least with One-Tel, he was never chairman, CEO or an executive and he could blame James Packer for dragging News Corp into the telecommunications company.

In the case of Ten, Lachlan has been an integral player during a slow-moving seven year train wreck that has cost shareholders close to $2 billion and Lachlan about $200 million out of his family inheritance secured at the time his parents divorced.

The key problem for both Bruce Gordon and Lachlan Murdoch has been a lack of financial capacity and the challenges of agreeing how they would jointly put their limited private assets on the line.

They were worried about potentially dropping more dollars on the $200 million CBA loan facility for Ten, hence the decision to threaten the Ten directors if they drew down further on the loan they’d jointly guaranteed with James Packer.

But appointing administrators KordaMentha undermined the power of the guarantors through their combined 28% shareholding in Ten.

Shareholders are pretty powerless in work-out situations, as Justice Black ruled in the NSW Supreme Court yesterday.

After today’s creditors meeting, there will be one last court process left — approving the transfer of Ten’s shares to CBS.

It is at this point that the Murdoch interests will need to step up with a blockbuster bid that actually delivers some value to shareholders, whilst honouring all obligations to creditors, including the onerous long term supply contract with CBS, which is the biggest value-destroyer in the company.

Only Foxtel, News Corp or 21st Century Fox could afford to make such an offer because Gordon and Lachlan Murdoch have now twice demonstrated their lack of financial capacity by making a low-ball opening offer and then not clearly trumping the CBS bid, even after all the details were made public.

CBS has been able to beat this today by only lifting its offer to unsecured creditors from $32 million to $40.58 million — much of which will ironically go to 21st Century Fox, which is the second largest creditor owed $195 million. The CBS debt has been valued by the administrators at $348 million and Justice Black yesterday ruled that this could be voted at today’s delayed second creditors meeting.

Once the CBS takeover is wrapped up, questions will be asked as to whether Lachlan can or should remain as co-chairman of News Corp and 21st Century Fox.

Ironically, the biggest thing he has delivered is a relaxation of Australia’s media ownership laws, which won’t help the Murdoch interests particularly because they are already the dominant player. However, it would make sense for Lachlan to sell his privately owned Nova radio assets to News Corp.

Yesterday’s court defeat for the action by Bruce Gordon and his WIN company (with Lachlan a silent partner) was comprehensive. Gordon just didn’t win any points at all. By the time the appeal is heard and a decision delivered, CBS will be well and truly in charge of the network having outlaid over $200 million to get control.

Unscrambling that egg will be next to impossible, unless CBS decides to take a quick profit from a real Murdoch bidding vehicle, not just Lachlan in a private capacity.

Don’t be surprised if Rupert Murdoch hasn’t been talking to CBS executive chairman Les Moonves about the price he requires to pass on control of Ten.

But having failed to bid so far, it would look very odd for a publicly-owned Murdoch vehicle to now enter the race and such a move would not reduce the embarrassment of Lachlan Murdoch crystallising his personal losses in Ten.

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