MediaWorks choir masks harsh notes

MATT NIPPERT
Last updated 05:00 23/06/2013

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OPINION: The long-overdue collapse last week of private-equity firm Ironbridge's stewardship of broadcaster MediaWorks had everyone - receivers, bankers and management - singing from the same hymn book.

Receiver Brendan Gibson of KordaMentha told a packed press conference on Monday: "This is a good news story." Rob McGeoch, lined up by a syndicate of the company's bankers to chair a takeover by lenders owed more than $400 million, said: "I see a positive future built on the back of the current strong trading performance." The company's group managing director Sussan Turner chimed in: "Our core business is strong."

Despite this perfect harmony - and the welcome news 1400 staff will retain their jobs - the choice by lenders to initiate receivership rather than a more conventional restructuring is ominous.

McGeoch said the new company would carry only $100m in debt, putting it in a much more sustainable position.

While debt levels of more than $700m were clearly untenable, there's more to MediaWorks' woes than excessive leveraging.

Gibson said the bankers' choice of receivership was intended to act as a "bridge" between old and new ownership. But this bridge isn't intended to carry everything across to the other side.

Lenders, it is understood, hope to strand some liabilities due to Wellington and Los Angeles in the husk of the old MediaWorks shell.

First among these is a potential $22m liability for the company's use of Optional Convertible Notes to manage its tax bill.

The Inland Revenue Department has won court cases confirming the practice is effectively tax avoidance, but still faces an appeal to the Supreme Court. McGeoch and shareholders think the result will be moot.

Gibson confirms whatever tax liability remains won't be carried over to the new company. It's fair to assume Inland Revenue is taking a close interest in these developments.

But this isn't the only liability subject to a game of corporate switcheroo. The Sunday Star-Times understands discussions are ongoing between McGeoch's new company and major United States-based studios Fox TV and NBC Universal.

Both recently signed contracts, still with many years to run, to provide MediaWorks with programming. Receivership may be used as leverage to renegotiate what are now argued to be onerous contracts.

Buried deep in the August 2011 accounts is a substantial programming bill for drinking from the poisoned V8 Supercars chalice.

The costs of this contract - believed to be around $10m - was combined with "contracted analogue transmission costs" and discounted as an extraordinary item.

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These accounts - the most recently filed with the Companies Office - are prefaced with more than two pages of tortuous explanation on why a $305m loss was actually a $44.2m profit. The bottom-line loss was mitigated, MediaWorks' Ironbridge-appointed directors said, by numerous extraordinary items.

Some of these are easily accepted - a $241m goodwill writedown wasn't cash - but others, like the V8 contract, are harder to swallow. Tellingly, cash flows from operations - once lenders had sucked out $26m in interest charges - was negative.

- © Fairfax NZ News

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