Ten Network Holdings Limited surges 7% on takeover speculation: Should you buy?

Yesterday's surge could be the start of something big for Ten Network Holdings Limited (ASX:TEN).

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published November 7, 2014 9:59 am AEDT

Investors can make a handy profit if companies they own are subject to a takeover or merger offer. Great recent examples include David Jones, Warrnambool Cheese and Butter, and Transfield Services Limited (ASX: TSE).

Reviewing 'strategic options'

Investors in struggling media group Ten Network Holdings Limited (ASX: TEN) will no doubt be pleased with news yesterday that the company is reviewing strategic options with advisor Citi Group.

The announcement followed months of speculation that various rivals are watching Ten closely, with the idea of making a takeover attempt in the near future. Recent media speculation has named pay TV operator Foxtel, various private equity groups, Fairfax Media Limited (ASX: FXJ) and US cable operators like Discovery as potential suitors.

Terrible Investment

Since 2010, Ten's share price has plunged from a high of $1.88 to yesterday's close of 23 cents (including the 7% rise). It has returned a total of 5.25 cents to investors via dividends over the period.

The company has struggled to maintain relevance and competitiveness in the face of dwindling TV advertising revenue and an increase in online competition. Additionally, Ten has been criticized for failing to capitalise on bumper ratings over Christmas last year by delivering a poor lineup of shows in 2014. I struggle to see how this will change meaningfully in 2015.

Complications

To make matters worse, there are two factors that could slow or deter any takeover; the current Australian media laws and the three key shareholders that guarantee $200 million of loans to the company – Lachlan Murdoch, James Packer and Bruce Gordon. Without their support it would be difficult for any change of ownership to be successful.

Time to Buy?

I could never see myself taking a position in Ten, or any of the traditional media companies. The industry is changing so quickly that I believe investors are better suited to investing in companies that either distribute the information (i.e. companies like Facebook) or are placed to steal advertising revenue.

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