With media reforms freshly through the Senate, Lachlan Murdoch's investment company Illyria has lodged a fresh joint bid for Network Ten. Credit:Bloomberg Until earlier this year the Murdochs had a very firm stranglehold on Ten - Lachlan owned more than 7 per cent of the shares directly, Murdoch-controlled Foxtel had around 15 per cent and with their allies Bruce Gordon (14.9 per cent) and James Packer (7 per cent) they had the share register wrapped up. The troika of Murdoch, Packer and Gordon were also guarantors on a $200 million Commonwealth Bank loan to Ten. And Rupert Murdoch's US programmer Fox was one of Ten's largest program suppliers. It was an onerous and expensive supply contract that Ten was desperately trying to renegotiate in order to reduce its cost base and get business back on a commercial footing. Additionally the Foxtel-controlled company MCN was enmeshed in the operations of Ten as it had the contract to sell the advertising.

KordaMentha partner Mark Korda said the CBS offer for Ten was the highest price with the best settlement terms. Credit:James Alcock The Murdochs and their friends had all the bases covered. That all changed over a weekend in June. Out of nowhere Murdoch and Gordon informed Ten management that they would no longer guarantee the company's debt and warned the directors that they would thus be liable if the network continued to trade under the cloud of potentially insolvency. Directors had little option but to bring in administrators. Gordon and Murdoch clearly believed they had enough cards in their hands to convert the debt, they had guaranteed, into equity and get control of Ten on the cheap. They mistakenly relied on the fact that the mooted media ownership laws changes were in the bag and they would be legally able to pick up the network while in the hands of administrators. It was to be a executed with militaristic precision - a bloodless coup.

The Murdochs and their friends had all the bases covered. But they didn't count on Pauline Hanson and the rest of the colourful crossbench not to mention a citizenship crisis. Moving too early was only one mistake. In pushing the Ten Network into administration the Murdoch/Gordon team made an equally fatal strategic error. Until this point Murdoch and Gordon held the advantage - because they held the equity. Once the administrators were appointed it was open season. The administrators were then compelled to put the business on the auction block, open up its books to all comers and engage in a bidding process.

(When the shares were still trading Murdoch and Gordon could have launched a takeover offer - it would have had needed to be structured in a complex way with non-voting securities. But it was probably doable.) Once the administrators had placed Ten on the block - others began to sniff around. In particular CBS which was also a large program supplier and was owed hundreds of millions by Ten, had entered the data room. It had another connection with Ten in that it was one-third owner of one of its digital programs - Eleven. Bruce Gordon appeared to have a deal sewn-up. Credit:Rob Homer There had been plenty of media discussion about private equity rival bidders but almost no talk of CBS - which as a creditor and a program supplier - also had plenty of leverage and plenty of skin in the game. From the detail of the deal announced on Monday we know that CBS will take care of the $200 million in Ten's debt owed to the Commonwealth Bank and the $140 million owed to Murdoch, Packer and Gordon for guarantor fees. The purchase price will also include forgiveness of what the administrators estimate is a $300 million owed by Ten to CBS for program liabilities. It will also honour staff entitlements.

A rough estimate says CBS will be paying the equivalent of $600 million or more for Ten. But how much Fox will recover from what it was owed by Ten is not clear. It's unlikely to be anything like 100 cents in the dollar. That's just another bit of the collateral damage that the Murdoch empire will endure thanks to the decision to put Ten into administration. At this early stage it is not clear how this compares with Murdoch/ Gordon's offer. But one thing is for sure. The CBS deal will not require a change in legislation (although it will need Foreign Investment Review Board approval). From the perspective of the administrators and receivers this is a better bet than trying to second guess Pauline Hanson's next move. (Remember this is the person who wore a burqa into Parliament a couple of weeks back.) Senator Pauline Hanson wore a burqa during question time at Parliament House. Credit:Andrew Meares

All that's left now is to see whether the Murdoch/Gordon camp attempt some kind of legal action to block the sale of Ten to CBS - this must be a possibility. And last but not least investors can observe the fallout for the Ten's free to air competitors - Seven West Media and Nine Entertainment. Having a financially crippled Ten has suited them well. Shares in Nine in particular were bid up on the back of the Ten's troubles. But Nine shares have fallen on Monday in response to of the proposed sale of Ten while Seven West Network stock has risen. This possibly reflects the fact that Nine's video streaming business, STAN, which it part-owns with Fairfax Media, sources significant content from CBS - which as mentioned earlier is about to launch its own service into Australia.



