Rupert Murdoch’s News Corporation turned down an offer from a US ‘blank cheque’ company to invest in Foxtel in a move that could have provided the debt-ridden pay TV company with some financial relief.
Industry sources briefed on the talks who could not speak publicly for confidentiality reasons said a a special purpose acquisition investment company (SPAC) approached News Corp with an offer to invest in Foxtel in the middle of the year.
Under the terms of the deal, the SPAC would have acquired a major stake in Foxtel and paid off a large amount of the pay TV company’s $2.1 billion debt pile. The sources said News Corp would have kept a substantial holding in Foxtel under the proposal, which was not successful.
A spokesperson for News Corp declined to comment. Foxtel and Telstra, which owns 35 per cent of the pay TV company, also declined to comment.
Foxtel, which is 65 per cent owned by News Corp, has been under pressure in recent years amid the rise of offshore streaming services such as Netflix. The once dominant pay TV plaform has spent the last year drastically cutting costs and launching its own streaming products such as Kayo Sports and Binge in an attempt to reach new subscribers.
The company was trying to raise billions of dollars in debt in May last year in an attempt to roll over existing loans. It’s failure to do so meant resulted in a $300 million lifeline from News Corp, which it received without the backing of fellow shareholder Telstra.
According to News Corp’s most recent financial statements, Foxtel had US$965 million ($1.3 billion) in debt, excluding related party loans.
A SPAC is a publicly traded company with no operations or assets that is made up with cash raised by investors. It is built with the express intention of acquiring or investing in another unlisted company, allowing retail investors in the SPAC itself to get exposure to private equity style transactions.
There has been a boom in SPAC issuance in the US, with $US39 billion raised through the vehicles this year according to Pitchbook data.
It was not clear which SPAC approached News Corp with the Foxtel proposal, and any deal for Foxtel would be difficult to achieve given its ownership structure.
Sources pointed to Liberty Media, a company chaired by Mr Murdoch’s long-time media frenemy and US cable TV veteran John Malone, which announced plans for the launch of a SPAC last week.
The Liberty SPAC is expected to have a base offering of US$500 million and is searching for a target in the media, digital media, music, entertainment, communications, telecommunications and technology industries. Liberty Global, the UK subsidiary of Liberty Media, sold its 54.2 per cent stake in former regional pay TV company Austar to Foxtel for $1.9 billion in 2012. News Corp sources have played down this idea. Liberty could not be reached for comment.
Oaktree Capital, which was heavily involved in the recapitalisation of Nine Entertainment Co (owner of this masthead) and has invested widely in Australia, has launched two SPACs on the New York Stock Exchange. Other private equity firms that have invested in Australia that have raised SPACs include Apollo Global Management and TPG Capital.
It is unclear why Foxtel rejected the offer, but some indicated it was below News Corp’s valuation of the asset.
Foxtel also lost subscribers this year because of the closures of pubs and clubs across Australia which was caused by social distancing restrictions.
The coronavirus pandemic added to these pressures and led to Foxtel standing down more than 200 staff and axing more than 300 jobs earlier this year.
News Corporation wrote down the value of pay-TV operator by $1.4 billion in May. Telstra also wrote down the value of its shareholding by $300 million, bringing the company’s total value to $1.3 billion.
Foxtel’s revenue fell by US$18 million to $US496 million in the first quarter despite an increase in the number of subscribers. Foxtel’s total paying subscribers increased by 7 per cent to 3.29 million as of September 30, but the amount of revenue per user increased by 1 per cent to just $US56 ($77).
News Australia Holdings (the parent company of News Corp) divested its subscription services segments on July 2 this year and presented it as an “asset held for sale”. The sources said News Corp could have been considering the offer at the time.
News Corp chief executive Robert Thomson said earlier this month he did not see a need to give Foxtel more money. “We foresee no need to bolster Foxtel with extra investment, which shows that the business is on a particularly positive trajectory,” Mr Thomson said.
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