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AUSTRALIS

AUSTRALIS BACKGROUND

In 1994,Tele-communications Inc of US (TCI) and Ron Brierleys Guiness Peat Group (GPG) paid $117m for exclusive satellite licence till July 1997. In total they paid $333m for satellite and microwave licences in all capital cities.

Chairman is Rodney Price and CEO Neil Gamble. A third shareholder is Lenfest Communications, which is half owned by TCI.

On 19 April 1996, a major rescue package changed the ownership and voting rights of Australis. A new investor group has guaranteed $162m of debt so that Australis can continue for about another 6 months. Further restructuring will then be required. The rescue saw several new players providing the guarantee. The were PBL (Publishing and Broadcasting Ltd - Packer), United International Holdings (UIH a franchisee of (GPG) and JP Morgan. PBL guaranteed US$32m, Lenfest (59% TCI) $75m, UIH US$10m, GPG US$8m. See
UIH Austar and Packer & PBL

In return, PBL could own up to 11% of the capital of Australis and Lenfest 38% of the capital. However, as PBL is an Australian company and Lenfest a US company, the voting strength of PBL will be around 25%. (Lenfest will be non voting).

Guarantees may be converted to interest free loans after 6 months or equity at any time to Dec 1998. The rescue only defers the difficult decisions for 6 months. The whole matter seems to be plagued by litigation. Another factor is the junk bond holders. Their concern is a dilution of their security.

Nov 96: Neil Gamble replaced as CEO by Sean O'Halloran from Optus Vision. Packer has guaranteed the survival of Australis with a promise of additional capital. Australis shares at 14c.

Jul97: Another Merger with Foxtex announced. See Below for details.

Nov97: The ACCC has blocked the merger again and Court proceedings have commenced. The case will not be heard till 1998. Australis has insufficient funds to get past December 97. Collapse is imminent. Share prices have plunged. Foxtel has announced that the merger is now off. Australis has initiated court proceedings against Telstra seeking damages of $2.4bn.
Debt is at $1.2bn and Losses total $691m.

Mar98: Australis is facing several legal suits from Foxtel, PBL and Movie suppliers. It obtained some additional funding in Dec and is reported to be just trading.

May98: 5th May, Australis is finally put into receivership in an Australian Court. US Chapter 11 action was also under way. Telstra has sought the winding up order. May98: 18th May Australis placed into liquidation. It had lost over $691m to June 97. Assets are said to be worth about $50m.

AUSTRALIS BECOMES FOXTEL?

July 97: Agreement has been reached again for a reverse takeover involving Foxtel, Australis and Packer. Australis will buy Foxtel while News and Telstra would have a majority of shares in Australis. Details have not been released and ACCC approval is needed. A formal announcement was made on 25th July. It is expected that News and Telstra will own 66.5% of Australis and will call it Foxtel. To understand this move the steps notionally are:
1. Australis will buy Foxtel
2. Foxtel owners will get most of the Australis shares
3. Australis will be renamed Foxtel 4. Foxtel has effectively been listed on the stock exchange. Packer's PBL may get 25% in return for the loss of its critical programming rights. Telstra will need to contribute several hundred million dollars as it wants to defer the cable roll-out while the float is under way. Officially it is saying that the rollout has stopped at 2.5m homes but has the right to resume the roll-out and Foxtel must use Telstra till 2020.

See Australis Telstra failed Merger

GALAXY AUSTRALIS

Galaxy is the Pay TV arm of Australis.

History: Galaxy Pay TV started Jan 95 with 8 channels on microwave (MDS) and in Sept 95 by satellite (digital). Galaxy has Paramount Pictures, Sony Pictures Entertainment (Columbia Tri Star), Universal Pictures/MCA for movies for 7 1/2 years exclusive rights. Commenced operations with a $299 set top unit.

AUSTRALIS FINANCES

                94/95  95/96  96/97
Sales                  $ 52m  $127m
Losses                 $221m  $259m
Abnormal Loss          $ 31m  $ 39m
Net Loss        $122m  $252m  $298m
Annual Report June 95: Losses total $122m. Subscribers at 31,000 of 1.5m possible. Discounted start up fee is $99. Backlog of satellite customers of 50,000. Satellite will cover 90% of homes in Australia.

Annual report June 96: Losses total $251.7m. Total loss for 3 years is $392m.

Sep96: Australis loses 56,796 customers in 6m to August. Churn was about 47.6%. UIH is now threatening with a plan to establish a national satellite pay-tv network. See UIH Austar

Nov96: Australis rates are $49.95. Sept quarter results show a $51m loss, down from $88m in previous quarter.

Mar97: Australis announces a loss of $141.9m for the 6 months ending Dec 96. Revenue was $70.8m. At Jan 31, 97,000 connected. Abnormal losses were $38.3m, attributed to litigation costs. The income from Foxtel was $14.5m, based on 140,000.

Jun97: Australis announces a worsening position with a $200m loss for the last 9 months.

Sep97: Annual Report 97 posts a loss of $297m for the year. Now has 110,000 subscribers. Nov97: Customers still at about $11,000.

HISTORY OF AUSTRALIS

Prices of shares issued at $1.00 rose to a peak of $1.07 in Dec 94 but have fallen steadily to $0.67 in Sept 95. Shares were around $1.20 in Jan96 but fell to 80c in Feb. See later re 1996 rescue.

Jun95: Galaxy has agreed to provide Foxtel with 4 of its channels: Showtime (top movies), Encore (old movies), PSN (sports) and TV1 (general).

Sep95: Foxtel obtained 50% of XYZ Pty Ltd which owns the other 4 channels of Galaxy: Max (general), Arena (general), Quest (documentary), and Red (music).

Sep95: Foxtel pays Galaxy $25 per month per subscriber for Galaxy channels. This is regarded in the market as excessive. Foxtel would like to discount this payment. The deal is estimated to be valued at $4.5bn over 25 years. Any takeover would leave only two Pay TV operators, attracting a Trade Practices investigation.

Dec95: Galaxy announced that they now had 62,000 customers. Australis posted a loss of $33m for the 3 months to Sep 95. Galaxy also dropped the connection fee to $19.95 when the proposed merger with Foxtel was announced.

Feb96: Australis predicted 154,000 subscribers by end of month Report 6m to 31/12/96: A loss of $97.5m reported. Installation costs increased from $20 to $200 and subscriptions from $40 to $50 Revenue up from $0.8m to $13.2m in last 6 months.

Mar96: Australis announced connection fees would rise to $199 and monthly fees to $49.95. (Connection fees are still subsidised as the microwave antenna costs about $500 and satellite about $1000.) Customers connected was 141,000 and 8 channels being delivered. The ACCC rejection of various forms of merger with Foxtel continued. Australis suffering from severe cash flow problems.

Apr96: Australis shares suspended from stock exchange for several weeks as a rescue was negotiated with several parties. Price at suspension was 57 cents.

Apr96: On 19 April, Australis announces the details of a major restructure following negotiation of a rescue package. The surprise package included Kerry Packer's PBL. (Publishing & Broadcasting Ltd.) Details above. On relisting the shares jumped to 69c but closed at 65c. Rod Price accused News of trying to "rip the programming arrangements out of the company". Many believe that the deal with Foxtel on programming is above market price. By May 6, the shares had slumped to 48c.

May96: Australis is under attack from News Ltd as it appears that Australis has sold its programming twice. Foxtel needs the Galaxy programs. Australis appears to have sold some rights in regional areas, exclusively to UIH and non-exclusively to Foxtel. Gold Coast seems to be one area. As Telstra is cabling Gold Coast, it obviously relied on the Australis programs being available. If not, then Australis will be liable for considerable damages. UIH may not release its exclusive rights. UIH is now talking to Optus and Foxtel. Australis has sold its rights to East Coast TV and UIH, mainly in regional areas. UIH is cabling Darwin.

Jun96: Australis shareholders approve rescue plan. Opposed by Telstra at meeting. There is speculation that Australis is looking at packaging Optus and Australis programs on satellite. Australis still needs to find long term funding before Nov 17,96. Threats of litigation from all exist.

Jun96: Australis announced at end of May, there were 122,000 subscribers. Australis Galaxy had about 115,000 customers. Foxtel had about 75,000 customers. 31,000 are said to belong to franchisees such as UIH.

Jun96: Australis and UIH end their dispute over exclusive use of Galaxy programs. Australis is to pay between $8-$10 per month to UIH for every Foxtel customer in the UIH franchise areas. Jul96: Australis shares suspended again with ASC and ASX seeking further information on disclosures. Last traded at 35c. Leaked documents paint a poor financial picture and a significant loss of subscribers. Also special control arrangements involving Packer has raised concern. Aug96: Shares again traded and slumped to 25c. Big losers include AMP with 15% of equity and A Hadid who had invested $20m. Australis is trying to raise $US225m to cover debts.

Aug96: Shares were again suspended at a price of 12c. On 20th Aug, Australis announced an 11th hour deal to save it from receivership. The deal involves the Packer group and Optus. Two proposals were considered by the Board and the Packer and Optus proposal was preferred. The core of the deal is a joint venture by Optus and Australis in the Pay TV market. Given the impact this will have on Foxtel, ACCC approval will be needed. A number of investors including PBL (US$15m), Lenfest (US$65m), AMP ($10m), UIH (US$4) GPG (US$1), and Television & Radio Financial services (US$10) and the Lopez family (Philippines) will provide new equity and funding. Optus will pay Australis $25m.

Sep96: The ACCC approved the Optus venture. (see Federal Ct decision later) Nov96: Australis raised US$150m after PBL (Packer) and Lenfest made up the shortfall. PBL put in US$36.5m while Lenfest put in US$40m. Australis had to offer 15% interest to the junk bond holders. PBL has now invested $81m and Lenfest $250m. Packer & PBL

Feb97: Australis may reduce fees to retain customers as the higher charges have caused a reduction from 120,000 to 90,000. It may now be at 80,000. Mar97: Australis claims 97,000 customers as at 31 Jan 97. Jun97: The Federal Court has blocked the planned joint venture with Optus. Foxtel had challenged the venture on competition grounds. Australis, with increased losses is having discussions with Optus proposing a merger. This may be difficult for Optus as Australis is carrying significant debt and Optus is still trying to resolve the debt and debt potential of Optus Vision.

Jun97: News Ltd and PBL announce on 20 Jun that they will both work together for the benefit of Foxtel. PBL will sell News and Telstra 53.5m junk bonds but PBL will retain its 83.7m voting shares in Australis. PBL is expected to take at least a 25% stake in Foxtel. A merger of Foxtel and Australis seems to be the most likely outcome. Australis has yet to respond but is still having discussions with Optus and Foxtel.

TELSTRA AUSTRALIS MERGER PROPOSAL

[Note this proposal was blocked by the ACCC]

In late 1995, Foxtel and Galaxy were working together and a merger was possible. They have an agreement to allow each other access to any new channels. Thus Foxtel channels may be on Satellite to many more homes within Australia, within a very short time. Satellite has proved very popular and provides many quality pay TV channels. See article re Pay TV USA DBS (Direct Broadcast).

On 18th October 95 Australis announced a "reverse takeover" of Foxtel. It is structured as a merger. Australis will buy 100% of Foxtel. Telstra and News Ltd will be given 28.75% each (in shares and convertible notes) of Australis. The convertible notes were used to avoid problems with foreign ownership. The result will leave Telstra with a 20% voting interest and News Ltd with a 5% voting interest.

The balance of the shares in Australis (42.5%) will be held by TCI and Lenfest Corporation. Telstra and News will have 6 of the 10 directorships on the Board. Rodney Price will remain as Chair- man. TPA/ACCC approval is critical and a decision is expected in early 1996.

The merger gives Foxtel coverage of 90% of Australian homes via cable, satellite and microwave.

ACCC approval was not automatic. Delays and possible refusal have caused Australis shares drop to 1.03 after earlier rising to $1.21 Foxtel/Australis offered Optus some microwave access in order to assist approval. Optus rejected this as they had no expertise and a second set top box was required. The deal may now fall through. [The deal did fall through]

PACKER & PBL

The Packer family owns Consolidated Press Holdings CPH.

CPH owns 45% of Publishing & Broadcasting Ltd PBL.

PBL owns the following:
100% of Channel 9
40% of Village Nine Leisure
27% of New Regency
15% of John Fairfax Holdings Ltd (SMH, AFR, Age, magazines)
5% of Optus Vision (option to go to 33%)
12% of Australis
10% of Sydney Harbour Casino
50% of Sky Channel (with News Ltd)


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