The market seems unexcited by reports that Ten Network Holdings Limited (ASX: TEN) is exploring an alternative plan to recapitalize its business, but this development is good news for shareholders.
This is because the struggling free-to-air television station could now have a credible way forward after negotiations to sell the company stalled.
It is obvious that something has to give as Ten will need a capital injection of sorts as it struggles with poor ratings, a lacklustre advertising market and the rising popularity of internet television.
The federal government's latest announcement on loosening media ownership laws will make Ten more attractive as a target.
This hasn't done much for Ten's share price though with the shares trading flat at 23.5 cents this morning. In fact Ten is one of the worst performers in the media sector when compared to the likes of News Corp (ASX: NWS) and APN News and Media Limited (ASX: APN).
It's hard to imagine, but even struggling newspaper group Fairfax Media Limited (ASX: FXJ) has managed to outperform it over the past 12 months.
That's quite remarkable given the pessimistic assessment of Fairfax two or three years ago as it faced the threat of online rivals. But the turnaround shows that there is strategic value in media assets and should give Ten's shareholders some heart.
Pay-TV operator Foxtel and Discovery Communications made a tentative bid for Ten late last year that valued the stock at 23 cents.
However, Ten's major shareholder Bruce Gordon had opposed the deal as it is believed he is positioning himself to capitalise on the change to media ownership laws. Gordon is the chairman of regional TV operator WIN Corporation.
A capital raising could pave the way forward as it would allow Foxtel/Discovery to build a stake in Ten while giving Gordon a chance to beef up his position in Ten.
The bigger question is the size of the discount that Ten needs to price the new share offer. I suspect Ten will need to sell new shares at under 20 cents to garner enough support.
There is value in Ten, particularly if you consider the strategic nature of its assets. But investing based on corporate actions is seldom a good idea.
It might be better to sit aside until we see a clearer plan from the company. In the meantime, the experts at Motley Fool have identified a better stock for investors to sink their teeth into.
