The Media Works receivership demonstrated once again that highly leveraged companies are high risk entities.
The company, which owns TV3 and a number of national radio network including Radio Live and More FM, was listed in July 2004 when CanWest sold down a 30% stake.
In May 2007 CanWest sold its remaining 70% to HT Media, a private equity consortium, and a few months later the latter made a successful takeover for 100% of the media group.
As with most private equity deals the purchase was funded with debt and this was loaded onto the balance sheet of the acquired company.
Media Works – Leveraged capital structure
|
($m) |
August 2011 |
August 2008 |
February 2007 |
|
Total Equity |
(369.3) |
(18.7) |
368.7 |
|
Debt |
583.3 |
769.2 |
167.0 |
|
Other liabilities |
114.7 |
75.4 |
49.8 |
|
Total Liabilities |
328.7 |
825.9 |
585.5 |
Media Work’s debt went from $167.0 million just before the takeover to $769.2 million post the private equity acquisition.
The timing couldn’t be worse as the GFC was just about to hit and the NZX peaked in May 2007.
The company has suffered huge losses since 2007, mainly through the write-down goodwill from $640.9 million in August 2008 to $142.0 million in August 2011. The latter figure is from the latest publically available accounts.
The receivership and capital restructuring is a positive outcome for Media Works. The company is now in a much better position than it was this time last week, jobs are saved and all non-bank debt obligations will be met.
The banks and private equity investors are expected to suffer large losses but that is one of the consequences of highly leveraged acquisitions. These high leveraged strategies can deliver immense profits as well as large losses.
Brian Gaynor
Executive Director, Milford Asset Management