Ten Network admins acted illegally, court told
Ten administrators acted unlawfully when deciding to ask creditors to accept or reject a CBS offer, a court was told.
Ten Network administrators KordaMentha acted unlawfully when deciding to ask creditors in the broadcaster to accept or reject a takeover offer by US media giant CBS, a court has heard.
Lawyers for a rival bid from Ten backer Bruce Gordon yesterday argued that KordaMentha was not legally authorised or empowered to express an opinion as to the merits of one deal over another.
“The administrators turned the law on its head by choosing the winner and excluding Birketu and Illyria in its report,” Andrew Bell, SC, representing Mr Gordon, told Justice Ashley Black.
Birketu and Illyria are the private investment vehicles of Mr Gordon and Lachlan Murdoch, respectively. They tabled a joint bid for Ten, but KordaMentha backed a rival bid from CBS.
Instead, it was for the creditors and their advisers to make such an assessment, Dr Bell said, as the battle for Ten took another surprising twist.
Having themselves chosen the winner, KordaMentha “entrenched that choice” by referring to the Gordon and Murdoch bid vehicle in their press release of 11 September as “underbidders”, he said.
In fact, Birketu was a “disappointed overbidder”, he said, noting that Birketu and Illyria delivered a better return to creditors after Ten’s content supplier and largest creditor CBS was included in the deal — a total of $35 million compared to $32m.
Dr Bell said KordaMentha’s press statements endorsing CBS’s offer also had the effect of “poisoning” Ten employees against the Gordon-Murdoch bid by stating in Monday’s press release that the plaintiffs were “putting at risk” their jobs with a court action.
Dr Bell said Mr Gordon and Mr Murdoch’s Deed of Company Arrangement provided sufficient funds that would see Ten continue operating and meet the obligations to staff. It would retain all employees of the company, and allow shareholders to retain 25 per cent of their shareholdings, with Ten relisted.
He said that under the law Ten’s creditors, especially its employees, were entitled to choose between the offers.
KordaMentha’s stated preference for one DOCA over another could compromise the independence and integrity of the process, he said. Mr Gordon is seeking a court declaration that KordaMentha failed to give creditors adequate information about a joint bid by Birketu and Illyria because a 215-page report was deficient in several respects.
KordaMentha yesterday produced a second 94-page supplementary report to creditors, with an accompanying press release defending the firm against accusations it failed to adequately explain its decision-making process. With KordaMentha partner Mark Korda watching proceedings from the front row in a packed NSW Supreme Court, Dr Bell said the new report continued to be deficient in a significant number of material respects.
Among the flaws was the ongoing omission of an independent expert’s report as to the valuation of Ten on a going-concern and a winding-up basis, he said.
Richard McHugh, SC, acting for KordaMentha, argued that the report met the demands in last week’s application made by Mr Gordon’s WIN Corporation, a regional television company and Ten affiliate.
But Dr Bell argued “significant problems remain”. “Some of the earlier problems have been exacerbated,” he said.
The hearing, now expected to last three days instead of two, also marked the first time that Ten content supplier 21st Century Fox intervened and joined the proceedings.
Ian Pike SC, for Fox, told the court Fox was questioning why it would only receive less than 2 cents in the dollar, unlike other creditors who received a full payout. Under the CBS DOCA, Fox is treated differently to all other creditors.
Fox shares common ownership with News Corp, publisher of The Australian. Mr Murdoch, co-chairman of News Corp, and his family are major shareholders in Fox and News Corp.
It comes as the Nick Xenophon Team prepares to announce a deal on the government’s media reform package after demanding funding to boost the number of cadet journalists and better resource regional newsrooms.
Party leader Nick Xenophon has been locked in talks with Communications and Arts Minister Mitch Fifield to finish thrashing out the deal.
The government’s sweeping media overhaul already has the support of the four One Nation senators and Derryn Hinch, but the three Nick Xenophon Team senators and the votes of two other independents will be critical if the reforms are to finally pass parliament.