Three-way fight for ailing Ten

FOXTEL and US cable giant Discovery Communications are in a three-way battle against two American bidders to win control of Ten.

Saban Capital Group founder Haim Saban and wife Cheryl in Los Angeles.

PAY-TV operator Foxtel and US cable giant Discovery Communications will start as favourites to win control of Ten Network in a three-way battle against two American bidders: a Los ­Angeles-based private equity player and a New York-based hedge fund.

A second round of bidding looms as the pay-TV consortium faces off against interest from private investment firm Saban Capital Group and hedge fund Anchorage Capital Partners.

According to sources, none of the non-binding proposals went above 25c a share as Ten’s advisers Citigroup received three proposals just before a midnight deadline on Tuesday.

All the offers value Ten at between $510 million and $664m.

Shares in Ten closed down 6.25 per cent, or 1.5c, at 22.5c, indicating the offers came in well below the $770m price tag Citi and the Ten board is believed to have wanted.

In a statement to the Australian Securities Exchange, Ten confirmed it had received “non-binding, conditional proposals from a number of parties” but did not disclose the identity of the bidders.

After a series of media leaks during the sale process, Ten urged “caution in dealing in its shares on the basis of media speculation about potential transactions involving the company”.

Aided by Citigroup, an independent committee will consider the proposals this week, which could see one bidder given preferred status.

Despite a willingness by some of the major shareholders to consider offloading their stakes, the proposals may not result in a transaction.

Any deal needs to attain the support of three shareholders who have guaranteed a $200m loan to the network: News Corp co-chairman Lachlan Murdoch, Crown Resorts chairman James Packer and WIN Corporation owner Bruce Gordon.

The most logical buyers of Ten also shape up as the frontrunners, although they will almost certainly face scrutiny from the competition regulator if the bid is accepted.

Foxtel, which is half-owned by News Corp, publisher of The Australian, is following a global trend of pay-TV companies buying into free-to-air TV. Under the 23c a share proposal, Foxtel is seeking to purchase a 14.9 per cent stake in the broadcaster.

There is significant upside from advertising sales, cross-platform promotional opportunities, programming deals, and potential cost savings across back-end functions.

As the world’s No 1 pay-TV programmer, Discovery can extract more value from its programming by distributing content on Ten’s three channels, and digital platforms.

Among the other bidders, Saban Capital Group specialises in the media, entertainment and communication industries.

Founded by billionaire media proprietor Haim Saban, the firm makes both controlling and minority investments.

The business magnate co-founded Fox Family Worldwide with Rupert Murdoch’s Fox Broadcasting before selling it to Disney in 2001. A Saban affiliate company owns the rights to long-running children’s franchise Power Rangers.

The third runner and rider is Anchorage Capital Partners, a specialised private equity firm, which operates two funds with a total of $450m under management.

After Ten suffered a sharp loss in audience and advertising revenue share, the media company has come to fit Anchorage’s focus on operational turnarounds and special situations investments.

Private equity firms have had a mixed track record investing in the Australian media sector. CVC Asia Pacific and Kohlberg Kravis Robert swooped on the Nine and Seven networks of Mr Packer and Kerry Stokes, respectively, within months of each other in 2006, paying billions of dollars at the top of the market to secure half shares of the two leading networks.

But both investments were cruelled by the global financial crisis and a contraction in advertising.

Nine is now owned by two US hedge funds, which took control of the company in a debt-for-equity swap when the network was on the brink of insolvency.