Ten Network Holdings Limited (ASX: TEN) surged 4% in early trade on Monday after reports suggested that U.S. cable giant Time Warner had placed an informal offer for the company in October. The report follow a 7% surge in the share price last week after newspaper speculation suggested Fairfax Media Limited (ASX: FXJ) and Providence Equity Partners could be potential suitors.
Cut-Price Offer
Time Warner's offer of A$680 million for the company equated to 25 cents per share, well below the current price of 28 cents per share. The offer was purportedly placed when the share price was hovering between 18 and 20 cents per share and represented a 25% premium to the prevailing price.
Reviewing 'strategic options'
Ten Network last week announced that the company is reviewing strategic options with advisor Citigroup. The announcement followed months of speculation and a disappointing annual result of a $170 million loss.
Interestingly, there has been little word from major shareholders Lachlan Murdoch, Gina Rinehart and James Packer, however one would imagine that they would have been pushing for the Citigroup review.
Terrible Investment
Since 2010, Ten's share price has plunged from a high of $1.88 to Friday's close of 27 cents. It has returned a total of 5.25 cents to investors via dividends over the period.
The company has struggled to maintain relevance and competitiveness in the face of dwindling TV advertising revenue and an increase in online competition. Additionally, Ten has been criticised for failing to capitalise on bumper ratings over Christmas last year by delivering a poor lineup of shows in 2014. The network is youth-focussed, a segment of the population that is, in my view, watching less TV.
Complications
To make matters worse, there are two factors that could slow or deter any takeover; the current Australian media laws and the three key shareholders that guarantee $200 million of loans to the company – Lachlan Murdoch, James Packer and Bruce Gordon. Without their support it would be difficult for any change of ownership to be successful.
Time to Buy?
I could never see myself taking a position in Ten, or any of the traditional media companies. The industry is changing so quickly that I believe investors are better suited to investing in companies that either distribute the information (i.e. companies like Facebook) or are placed to steal advertising revenue.