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Nine’s $3 billion IPO

Nine Entertainment will be taken public again by the end of the year, as shareholders Apollo Global Management and Oaktree Capital Group attempt to recoup some of their investment in the business.

The company was once owned by the Packer family, with James Packer selling his majority holding to CVC Asia Pacific for around $5 billion in 2007, just prior to the GFC. CVC then handed the company over to creditors Apollo and Oaktree in 2012 as it was forced to concede losses of $2 billion on the purchase.

When floated, the company will be on an earnings before interest, tax and depreciation multiple of just over nine times, owing to a market capitalisation of around $3 billion. The float will aim to raise between $500 million and $1.2 billion to pay down some of the company’s $1.1 billion debt and repay Apollo and Oaktree.

Nine Entertainment’s assets include free-to-air TV station Nine Network, ticketing company Ticketek, Allphones Arena in Sydney, and a stake in Australian News Channel (operator of Sky News). Nine has had a successful year, having recently won international cricket and Australian rugby league rights, as well as buying WIN Adelaide and striking a deal with Channel Nine Perth owner Bruce Gordon to acquire the Perth station and remaining regional stations once the Abbott government repeals current regulations disallowing it.

In recent years, Nine has reduced debt and sold down non-core assets such as the company’s magazine division, however investors are expected to scrutinise Nine’s ability to maintain advertising revenue while expanding into new segments such as online streaming. There is the possibility that Nine will announce an online subscription video service to be rolled out alongside the Coalition’s fast-tracked NBN. The NBN will provide the bandwidth required for the proposed streaming service.

Foolish takeaway

While it’s a little too early to decide whether to buy into the Nine Entertainment float, the company has been turned around in recent years. Recent deals and broadcasting rights will lock in a period of solid advertising revenue, and the company’s other assets will provide another revenue stream should television advertising taper in coming years.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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