Nine Entertainment Co. shares fell 3.4 percent on their stock market debut, almost 14 months after U.S. funds Apollo Global Management LLC (APO:US) and Oaktree Capital Group LLC (OAK:US) took control of the broadcaster in a debt-for-equity swap.
Shares in Australia’s second-biggest free-to-air broadcaster dropped to A$1.98 at the close of Sydney trading, compared with an offer price of A$2.05 a share. The benchmark S&P/ASX 200 (AS51) index fell 0.2 percent.
Nine and existing investors raised A$636 million ($576 million) after pricing the country’s second-biggest initial share sale this year at the bottom end of a marketed range. Proceeds from the IPO will be used to repay debt and return funds to the company’s private-equity owners.
“It was more than fully priced,” Evan Lucas, a Melbourne-based markets strategist at IG Ltd., said by phone. “The IPOs that have done well so far have been those that were priced conservatively.”
The Nine IPO valued the company at about 8.3 times estimated earnings before interest, tax, depreciation and amortization for the 12 months through June 2014, including debt, compared with 7.5 times for larger broadcaster Seven West Media Ltd., according to data compiled by Bloomberg.
The raising comes amid a rush of IPOs in Australia, where the value of offerings announced last month was A$3.2 billion, more than the previous 22 months combined, according to data compiled by Bloomberg. Apollo and Oaktree’s success in listing Nine contrasts with CVC Capital Partners Ltd., which purchased the broadcaster from billionaire James Packer seven years ago and lost most of its investment when it handed control to lenders in October 2012.
Nine’s offering is Australia’s largest this year after Pact Group Holdings Ltd. (PGH), the closely-held packaging maker controlled by Raphael Geminder, priced a A$649 million share sale last month.
Pact and Nine are the largest IPOs since 2010, when Westfield Retail Trust sold A$835 million of new shares and the Queensland state government raised A$4.3 billion selling a stake in rail operator Aurizon Holdings Ltd. (AZJ), according to data compiled by Bloomberg.
Nine was Australia’s first commercial television station on its maiden broadcast in 1956, hosted by Bruce Gyngell, father of current Chief Executive Officer David Gyngell. The business was owned by Frank Packer, grandfather of the billionaire James who sold it to CVC five decades later.
CVC wasn’t the first investor to lose money on Nine. Frank Packer’s son Kerry Packer sold the network to Australian investor Alan Bond in 1987 for A$1 billion, and bought it back for A$250 million when Bond went bankrupt less than three years later.
“You only get one Alan Bond in your lifetime,” Kerry remarked, according to Paul Barry’s 1993 biography “The Rise and Rise of Kerry Packer.”
CVC invested A$5.75 billion in debt and equity from 2006 buying the business from James Packer’s Publishing & Broadcasting Ltd. The London-based private equity firm was left with just A$4.5 million and a 0.75 percent stake in the restructured business after Oaktree, the world’s biggest distressed-debt investor, New York-based Apollo and other lenders gained control of the company through a debt-equity swap completed in January.
The television broadcaster, which also owns a ticketing business and the country’s largest indoor music venue, earlier this year bought affiliate stations in Adelaide and Perth and Microsoft Corp. (MSFT:US)’s 50 percent stake in the Mi9 venture.
The listing price of A$2.05 was at the bottom of its marketed range of A$2.05 per share to A$2.35 per share forecast in its prospectus. Investors would do well to avoid the first few days of trade to better gauge the market, said Peter Esho, chief market analyst at Invast Financial Services Pty.
“It’s probably not wise to write a check immediately,” Esho said by phone from Sydney. “Wait a few weeks and see what happens then.”
Dick Smith Holdings Ltd. (DSH), Australia’s largest electronics chain by store numbers, made its stock debut on Dec. 4 with a valuation more than five times the sale price received by former owner Woolworths Ltd. The company, part owned by Anchorage Capital Partners, closed at A$2.24 today, compared to its offer price of A$2.20.
‘Big Bang Theory’
Veda Group Ltd. (VED), a provider of consumer and corporate credit data controlled by Pacific Equity Partners, has jumped 54 percent since its debut yesterday.
Nine’s shows include “The Big Bang Theory” and the country’s most-watched current affairs program, “60 Minutes.” It has rights to broadcast the Ashes cricket series and National Rugby League matches.
After peaking at A$3.99 billion in the year ending June 2011, Australia’s total television advertising revenue has slipped 4.8 percent to A$3.8 billion in the most recent 12-month period, according to figures from industry body Free TV Australia.
Earnings before interest, tax, depreciation and amortization at Nine’s television unit fell 19 percent in two years to A$221 million in the latest fiscal year, according to the prospectus. Group operating profit margin has slipped from 22 percent in 2011 to 17 percent in the year ended June 2013.
Nine’s share sale comes amid a flood of new listings on Australia’s stock exchange, with 20 businesses announcing initial public offerings in Australia during November compared with an average of about 3.5 a month over the previous year.
Fund managers are looking to diversify their portfolios due to a dearth of attractive investments elsewhere, CIMB Group Holdings Bhd. analyst Andrew Tang said by phone from Sydney. The country’s benchmark stock index reached a more than five-year high on Oct. 28 and is up 12 percent this year.
Investors who’ve been burned by previous private equity-backed initial public offerings will be glad that Apollo and Oaktree will continue to hold onto part of their stakes, Mark McDonnell, an analyst at BBY Ltd., said by phone from Sydney. Myer Holdings Ltd. (MYR), sold to a consortium led by TPG Capital for A$1.4 billion in June 2006, hasn’t traded above its A$4.10 offer price since a 2009 initial public offering.
Oaktree will cut its stake to 14.3 percent from 27.8 percent while Apollo’s holding will be reduced to 22 percent from 25.6 percent as part of the IPO. Other funds that are among Nine’s owners will trim their collective holding to 30.2 percent from 46.5 percent.
“The fact that they’re staying substantial and strategic says to me that they have confidence in Nine’s prospects,” McDonnell said. “That’s reassuring for the market.”
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