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Nine executives lose millions as share plan falters

Eleven Nine Entertainment bosses who paid a collective $3.27 million for stocks as part of an executive share plan will soon trade them in for just $1 per person. 

The heavy losses will be led by Nine chief executive David Gyngell, who paid $1.2 million for his shares in late 2007.

Mr Gyngell may have saved the media group from collapse late last year, but the rescue plan involved a deal that will crystallise millions in losses for Nine’s management team later this month.

When Nine’s current owners, CVC Asia Pacific, took effective ownership of the company in 2008, they insisted that Nine’s management team have "skin in the game", according to Nine executives who spoke to BusinessDay anonymously.

For most of the 40 top executives at Nine who participated in the program, this meant taking mortgages on the family home - ranging from six figure to seven figure sums - to finance the share acquisitions, which totalled $25 million. Half of this amount was financed out of their own pockets, the other half was provided as loans from Nine. The loans were non-recourse, so the executives were not liable for them when the shares were effectively worthless within a year of the plan being implemented as the media downturn hit.

The shares have been worthless for years thanks to Nine’s poor performance in a dire environment for media companies, despite attempts to revive the executive share program in 2009.


The current buyback is part of a clean-out of the company’s executive share plan before the proposed capital restructure that will hand the company to its creditors, who are owed about $3.2 billion.

One executive quipped he was effectively paying to work at the company.

CVC’s $1.9 billion investment in Nine was similarly worthless, but it will receive a payment in return for its co-operation with a restructure that will hand ownership of Nine to its debt holders later this month following the approval of the deal from the lenders.

Nine would not offer any official comment on the fate of the share plan, and neither would CVC Asia Pacific.

Suffice to say, this was not meant to be how it worked. CVC Asia Pacific talked of how executives at Pacific Brands profited from a similar share plan when it acquired the iconic clothing manufacturer.

When the program was implemented in December 2007, Ian Law, Mr Gyngell’s predecessor as chief executive, acquired $5 million worth of shares, half of which was funded out of his own pocket.

One executive quipped he was effectively paying to work at the company

He departed in November 2010 when plans to take the company public again failed.

It is understood that if Mr Law was deemed to have retired he will have received back the $2.5 million he paid for the shares - if not he will have walked away with nothing from his investment.

Following the sale of the magazine division, ACP, as well as the resignation and retirement of senior personnel, 11 executives remained in the plan with shares they had paid $3.27 million for.

Last month, CVC passed a resolution to buy back the shares from these remaining executives for $1 per person - a total of $11.

‘‘The directors of the company have considered the position of the members of the company in proposing the resolution to approve the buy-back and consider that it does not materially prejudice the company’s ability to pay its creditors,’’ Nine said in a notice of the meeting in mid December last year to approve the buy back.

In related news, Bloomberg reports Nine will meet with US lenders on January 10 in New York to discuss a $700 million covenant-lite term loan it’s seeking to refinance debt, according to a person with knowledge of the transaction.

UBS AG, Deutsche Bank AG, Morgan Stanley and Nomura Holdings are arranging the financing, which also includes a $100 million revolving line of credit that will be undrawn at closing and be used for general corporate purposes, said the person, who asked not to be identified because the information is private.

Covenant-lite debt doesn’t carry typical lender protection such as financial-maintenance requirements.