Village Roadshow’s confirmation that it is involved in discussions over its 52% shareholding in Austereo Group raised the prospect of yet another attempt to privatise Village itself by the troika that has long dominated its affairs.
Village would have received many approaches to buy its holding in Austereo over the years but has resisted the temptation to cash out one of its most valuable and consistently-performing assets.
Under the guidance of long-serving executive chairman Peter Harvie, Austereo has arguably been the stand-out performer in the radio industry and would inevitably have drawn attention from private equity and other media groups.
Robert and John Kirby, Village’s chairman and deputy chairman, respectively, and Graham Burke, Village’s managing director for more than two decades, however, have hung onto the majority stake in the network despite the gyrations in Village’s own financial condition over the decade and a half since the Austereo group was formed.
The acknowledgement that they were in discussions over the shareholding, and Austereo’s announcement that it is involved in the negotiations and has established protocols for dealing with those directors who are also directors of Village, however, suggests that this time it might be different.
Village has a lot of value locked up in Austereo, which has a market capitalisation of more than $650 million. Village’s majority shareholding would be worth something north of $400 million, potentially significantly above that amount given its ability to deliver clear control.
Private equity would be an obvious player if Austereo is genuinely available, but the Ten Network, with James Packer, Lachlan Murdoch and Gina Rinehart on board, would also be a potential bidder. Murdoch owns half the rival DMG network but his interest in half the 18% stake in Ten acquired by Packer – and a declaration that they were acting in concert – could complicate matters for Ten.
Village recently sold its Sydney Attractions subsidiary for about $115 million and said it would use the proceeds to reduce its debt. Village is, as it always has been, highly leveraged, with net debt before that sale of about $1.3 billion against its own market capitalisation of about $400 million.
A sale of the Austereo stake would enable Village to substantially de-leverage. Village owns theme parks, cinemas, a film distribution business and has a very large but very opaque film production business, as well as the Austereo stake.
The trio of executive directors which has long dominated Village affairs has a history of contemplating privatising the group, whose complexity and debt levels and the perception that it was run for the benefit of the controlling shareholders has generated a view in the market that it was unsuited to a public listing, damaging its value.
The most recent attempt was in 2009, but in the midst of the financial crisis they couldn’t raise the funding.
Last year the triumvirate finally responded to the market’s concerns about its capital structure – it had issued non-voting shares to enable the executives to retain control – and reconstructed its capital base to convert the non-voting shares to ordinary shares, preceded by a buy-back that ensured they retained majority ownership.
If Village were to turn the Austereo holding into a very large lump of cash, that could help fund a buy-out of the minorities in Village – previously mooted transactions involved cancellation of the minority equity in return for cash.
Village’s reluctance in the past to contemplate a sale of the Austereo stake – even when its own condition was more stressed than it is today – means that there is no certainty a deal will take place unless someone is prepared to make it an offer clearly too good to refuse.
This article first appeared on Business Spectator
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
