John Drinnan

John Drinnan is the Media writer for the New Zealand Herald.

Don't adjust your sets, say receivers

MediaWorks enters limbo land while the broadcasting company is prepared for its new owners - minus the crippling debt

Brendon Gibson from KordaMentha Partners and MediaWorks board member Sussan Turner are working through the receivership. Photo / Dean Purcell
Brendon Gibson from KordaMentha Partners and MediaWorks board member Sussan Turner are working through the receivership. Photo / Dean Purcell

MediaWorks' receivers at KordaMentha and management are fond of talking about business as usual at TV3, Four and its radio stations which reach half of New Zealand's commercial radio audience.

Broadcasters and sales people at the company can breathe a sigh of relief that the crippling weight of debt that has hobbled MediaWorks has been discarded.

They can now hope for a new era when it is passed over to the new firm - albeit one owned by the out-of-pocket lenders who placed it in receivership. In the meantime, MediaWorks is in limbo land.

It was placed in receivership on Monday for what is expected to be a brief hiatus before being handed over to a new firm - dubbed Newco.

Few expect substantial changes at the company's radio arm, which includes networks such as More FM, The Edge and The Rock, with RadioLive already under intense pressure to recover from its last devastating radio ratings survey.

The radio division has been an unspectacular but solid performer, providing cash flow at a time of intense change in the media industry.

But a radio industry insider says the key challenge will be overhauling the piecemeal relationship between the radio, television and underdeveloped online divisions.

It is through being a combined operation rather than three partly connected silos that MediaWorks will be most likely to attract new investors.

TV3 and the underpowered digital arm are likely to draw the most attention from a new board headed by former SkyCity chairman Rod McGeoch, and including reality TV producer Julie Christie and Australian media executive Martin Dalgleish.

McGeoch has been actively working towards the new order for several weeks and has been a consultant for the lenders consortium led by Westpac Bank.

Christie and McGeoch have been in Hollywood trying to extricate TV3 from an $18 million programming deal.

The appointment of Dalgleish may mean that the new firm pumps resources into its digital arm, which has been growing from a low base.

But it still trails online media competitors such as tvnz.co.nz, nzherald.co.nz and stuff.co.nz - none of which have the triumvirate of radio, TV and online.

For MediaWorks it is the television arm that has been dragging the chain financially. And it is here - with the attention of the successful and tough-talking TV entrepreneur Christie - that MediaWorks faces the biggest change.

TV3 managing director Sussan Turner says television advertising returns have been improving. Much of the speculation about the future of TV3 comes back to the role and the forceful personality of Christie - a successful screen producer with a take-no-prisoners approach.

Her appointment will raise questions about maintaining the traditional distance between the board and editorial direction, if the reality TV queen takes a more hands-on role alongside MediaWorks TV chief Paul Maher.

Industry sources say Christie, who recently completed the handover of her former company Eyeworks, is highly regarded by TV3's banker owners.

The process for the bankers to take over the company - writing off $600 million and swapping some debt for equity - also raised a few eyebrows.

A banking source said the option of receivership - expected to undermine its obligation to its Inland Revenue debt - appeared to have developed in the past two months, after a long period discussing a more traditional restructuring.

Lenders often like receivers who front the media and deal with staff concerns, and it can be a clean way of initiating change, according to one private equity source who did not want to be named.

The former owners - private equity company Ironbridge Capital, whose excessive $740 million purchase and borrowing on the cusp of the global financial crisis landed the company in trouble - had an uncomfortable relationship with the bankers.

Led by Westpac Bank, they included RaboBank, Royal Bank of Scotland, Bank of Scotland, hedge fund Texas Pacific Group (TPG) and asset management company Oaktree Capital Management.

It appears that TPG and Oaktree bought debt in MediaWorks in expectation of a backdoor takeover - buying out debt at a discount and effectively expelling equity holder Ironbridge to take control.

But it is understood they failed to convince the banks to sell their debt.

Ironbridge, which has battled with bankers for years over banking covenants, lost its money on the investment a long time ago.

Yet it still had a peripheral role in MediaWorks and was ostensibly the owner until this week's receivership. Given that much of its initial purchase price was borrowed, it is understood it was not as big a loser as it has appeared.

Ultimately Ironbridge took a financial bath of around $169 million.

"The ownership company has been dysfunctional for a long time," said a financial source.

"By doing it this way [through a receivership] they can pull it into a clean package and try to attract new investors," said another industry source.

"The banks won't want to be hanging around for a long time. But I think they are prepared to hold on to the company with the expectation that it does all right with the vastly reduced debt and interest removed."

The swift transition of MediaWorks - with the write-off of $600 million of debt - has raised questions about whether it reduces the broadcasting company's exposure to a disputed $22 million tax bill.

Labour has questioned the relationship between National and MediaWorks, and revenue spokesman David Cunliffe has warned he will be "watching like a hawk".

National says it will not be involved in the handling of the tax issue. There is no evidence of any such involvement or interest in doing so.

But National came under fire in the past for offering a loan - the Government called it a deferred payment system - which allowed the company to retain its radio frequencies after credit dried up during the global financial crisis. It was subsequently paid off.

Former Communications Minister Steven Joyce is a former radio company owner who made his fortune by selling his stable of radio stations to the firm, and has several contacts inside the industry.

The tax dispute aside, many viewers will be hoping the $600 million debt write-off offers at least a temporary reprieve for MediaWorks, allowing investors to forget about the financial monkey on its back.


Inside story

• The new board is using its receivership status to renegotiate a programming deal estimated at $18 million with Fox TV.

• But its second channel - Four - relies on lower quality Fox shows.

• The television production industry is braced for the possibility of TV3 cutting back on drama production, where it has played a leading role.

• MediaWorks drama and comedy head Rachel Jean has left.


The players

Michael Stiassny - MediaWorks receiver. Business high flyer at KordMentha involved in the shift of MediaWorks to a new firm that will be owned by out-of-pocket lenders.

Brent Harman - One-time chief executive at TVNZ who chaired the MediaWorks board during Ironbridge Capital's ownership. He is also a director of SkyCity Entertainment.

Rod McGeoch - Chairman of the new board running MediaWorks that will take it off the hands of the receivers. A smooth-talking Australian who has a high profile in New Zealand and is a director of SkyCity and has been on the board of Telecom.

Sussan Turner - Former Impey acolyte and MediaWorks radio boss who rose to top as group managing director after his departure.

Paul Maher - MediaWorks TV chief executive who defected from being head of sales and marketing at TVNZ. Staff will be watching closely to see how his role develops with Julie Christie on the new board.

Julie Christie - Straight-talking owner of the Lifestyle and Food channel on Sky TV and former owner of Eyeworks Touchdown TV. She is highly regarded by the new owners for her understanding of New Zealand TV audiences.

- NZ Herald

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