Why CBS bid for Ten beat billionaires’ higher offer

MERCURY. NEWS. Pic of Bruce Gordon owner of WIN TV . Picture: Sylvia Liber . 7 February, 2017Lachlan Murdoch and Bruce Gordon’s bid for Network Ten was $3 million higher than CBS’, but was too complex and would have seen secondary creditors getting just 2 cents in the dollar, according to an unusual secondary creditors’ report released by KordaMentha on Monday.

The offer from the two men’s investment companies, Illyria and Birketu, offered a pool of $35 million to repay creditors compared with CBS’ $32 million.

However, CBS’ bid sees more money going to all creditors, except the ANZ Bank, Westpac and Fox, because it has agreed not to pay itself anything from the creditors’ pool of money.

Illyria and Birketu offered to pay CBS $7.4 million of the $348 million it is owed and 21st Century Fox $4.1 million of the $195 million it is owed. Employees and generic trade creditors receive 100 per cent of their claims in both bids.

CBS’ bid offered Fox $3.4 million, a total of $500,000 to ANZ and Westpac, $4.1 million to the Tax Office, and $2 million to Formula One. The Murdoch-Gordon bid offered $1.4 million to ANZ and Westpac, $300,000 to the ATO and $400,000 to Formula One.

The report says there were further complications with the joint bid, including its timing – the CBS deal can be completed by early October, while the other bid would take until late November – and pressure applied by Mr Murdoch and Mr Gordon on administrators.

“Although dated 24 August 2017, the B&I Transaction was submitted on 25 August, 2017 at approximately 8.30am and was expressed to be open until 25 August, 2017 at 5pm, unless extended by Birketu and Illyria, after which time it lapsed,” KordaMentha’s supplementary report notes.

“No extension was requested or otherwise provided to the administrators or receivers.”

The joint bid relied on the Commonwealth Bank renewing a three-year, $200 million facility to Ten guaranteed by Birketu and Illyria. (James Packer’s Consolidated Press Holdings had agreed to take a cash payment upon being released from his guarantee.)

And it offered two potential structures depending on whether media law reforms passed by September 30: If the laws passed, shareholders would keep 25 per cent of their shares in Ten with the other 75 per cent of shares transferring to Birketu and Illyria through a court order, the same processed currently proposed in the CBS offer. A board would be reconstituted and Ten could remain on the stock exchange. If media reforms had not passed, Ten would apply to the court to issue 1,070,000,000 zero-cost options to Birketu and Illyria. This structure would require approval from the n Communications and Media Authority.

“The options were to be exercisable into ordinary shares only on Media Law Reform Bill being passed (with a 10-year sunset date). This would have resulted, following the exercising of these options, in Birketu and Illyria holding in aggregate 80 per cent of shares in [Ten] Holdings”.

The administrators released the supplementary report following a court application last week from companies associated with Mr Gordon that successfully sought to delay the second creditors’ meeting.

“Whilst the form of the Birketu and Illyria bid is in no doubt of general interest, it is not the usual practice of administrators to report details of underbidders,” administrator Mark Korda said on Monday.

“It is disappointing that Birketu either directly or via related parties have pursued court action, delaying the creditors’ vote and putting at risk the certainty provided to 750 employees and creditors under the CBS transaction.”

The CBS offer was “superior to the Birketu and Illyria proposal for creditors generally”, he added.

Its total value is $201 million, including $103 million already used to pay the CBA debt, guarantor fees of about $36 million owed to Mr Murdoch, Mr Gordon, and Mr Packer, $32 million for the creditors’ trust and $30 million in working capital for the broadcaster.

The second creditors’ meeting will be held in Sydney on September 19.

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