U.S. private equity firm TPG is considering partnering with a Hollywood media executive to bid for debt-laden Australian media company Nine Entertainment Co., sources said, in what could be a $3.1 billion buyout. Nine’s owner, buyout firm CVC Capital Partners, has been locked in a battle to keep Nine out of the hands of creditors and a successful deal could mark its exit from a disastrous investment.
(Reuters) – U.S. private equity firm TPG is considering partnering with a Hollywood media executive to bid for debt-laden Australian media company Nine Entertainment Co, sources said, in what could be a $3.1 billion buyout.
Nine’s owner, buyout firm CVC Capital Partners, has been locked in a battle to keep Nine out of the hands of creditors and a successful deal could mark its exit from a disastrous investment.
It would also come amid a major shake-up in Australia’s media industry as consumer preferences change.
Nine has A$2.7 billion of senior debt due in February 2013, plus another A$975 million of mezzanine debt due the following year, a legacy of CVC’s takeover of Nine at the height of the bull market.
Rival private equity funds Apollo Global Management and Oaktree Capital own around A$1 billion of Nine’s senior debt and are pushing to assume ownership of Nine.
CVC’s options include refinancing the debt, bringing in new investors and asset sales. An attempt to refinance earlier this year failed.
TPG is looking to team up with Harry Sloan, a former chairman of Hollywood studio Metro-Goldwyn-Mayer, for the Nine bid, the sources said.
TPG and Sloan were considering buying some or all of Nine’s assets, one source with direct knowledge of the matter said. The person declined to be named because the matter is confidential.
A TPG-Sloan consortium would propose to reduce Nine’s debt load by at least half so that cash flows could fund the interest payments, a second source with direct knowledge of the matter told Reuters.
“Nine is a strong cash-generating asset. The debt is the question. One just needs to fix that and they believe they can do that,” the source said, adding that a decision on whether to put in a bid would be made in the coming weeks.
CVC could also retain a stake in a restructured Nine, the person said.
The two sources said that TPG Managing Partner Ben Gray met with Nine’s top management this week in Sydney.
TPG and CVC declined to comment.
Nine Entertainment, one of the biggest private-equity owned companies in Australia, has assets including the Channel Nine free-to-air television station, ACP Magazines, which publishes the Australian Women’s Weekly, ticketing agency Ticketek and Acer Arena.
CVC bought Nine for A$5.3 billion in cash and debt from Australian billionaire James Packer between 2006 and 2008, at the height of the bull market, but the value of media assets has slumped in line with declining advertising revenues.
A deal at around $3 billion would leave CVC with a hefty loss on its original A$1.9 billion equity investment in Nine, spread across four of its funds.
Sloan had approached CVC in May with an offer from his vehicle Global Eagle Acquisition Corp to buy a controlling stake in Nine, a source had told Reuters.
Media reports said at the time that Sloan was pushing to value Nine at A$3 billion ($3.1 billion), which CVC believed was too little for the media conglomerate.
Sloan is chairman and chief executive of Global Eagle, formed in February 2011 as a special purpose acquisition vehicle to invest in media assets. Global Eagle raised $190 million in an initial public offering last year.
FALLING AD REVENUES
The Australian media sector is struggling with declining advertising revenues for newspaper and TV as the Internet becomes the preferred medium, and shrinking market share for free-to-air TV as consumers’ choices multiply for news and entertainment.
Nine’s two listed rivals among the TV networks, Seven West Media and Ten Network, chaired by Lachlan Murdoch, have both tapped shareholders in the past two months with deeply discounted share issues, to help reduce debt as markets weaken.
Earlier on Friday, Ten also announced it would sell its outdoor advertising business Eye Corp for up to A$145 million to a company controlled by CHAMP Private Equity.
Shares in Ten have slumped by 35 percent this year and Seven West Media’s shares have halved, compared with the broader market’s rise of 3.7 percent.
The Australian Financial Review first reported TPG’s interest in Nine.
CVC is being advised by Credit Suisse, Goldman Sachs and Macquarie Capital on a restructuring of Nine’s debt. Bank of America Merrill Lynch, according to a source, is advising TPG and Sloan. ($1 = 0.9597 Australian dollars) (By Victoria Thieberger and Narayanan Somasundaram; Editing by Richard Pullin and Muralikumar Anantharaman)