Nine Entertainment earnings likely to fall

Nine Entertainment Co's earnings are likely to dip next year even after its $500 million sale of the ACP Magazines division to German media giant Bauer.

The Australian Financial Review reported today that Nine is now forecasting headline earnings of $253 million in the year to June 2013, against a previous forecast of $289 million. News that Nine Entertainment's earnings are falling further could work in favour of the US hedge funds that are aiming to secure a dominant shareholding in the business.

Speculation over the future of Nine Entertainment is intensifying with most analysts expecting major shareholder CVC Capital Partners to strike a painful deal that all but writes off its multi-billion dollar investment in the company.

Other media outlets have speculated that receivership is a possibility for Nine Entertainment Co, as CVC and the debt holders wrangle over the final shape of the restructuring plan. Other pundits expect a compromise to be reached.

“My view is that they will try and cut a deal before receivership happens, so it doesn't impact the business,” said one investment bank media analyst.

The final deal is tipped to take the shape of a debt-for-equity swap, which would result in CVC dramatically reducing its stake in the business, while US hedge funds Apollo Global Management and Oaktree Capital Group, and mezzanine debt holder Goldman Sachs would step in to carve up the company.

“This is very embarrassing for CVC and one of the largest losses that a private equity firm has experienced,” said Cox Media Principal Peter Cox.

Under the terms of the deal, CVC would lose most of $1.9 billion in equity it put into Nine Entertainment Co when it acquired the business in 2007, BusinessWeek has reported. Its total cash and debt investment in Nine was $5.3 billion.

“The debt holders want CVC to walk away and exchange that debt for the shareholding, while CVC would say tough luck to those mezzanine debt holders,” Cox said. He also said its possible that Nine Entertainment Co breaches its debt covenant ratios before February, making it more urgent for a deal to be reached.

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