Monday, April 11, 2011

Mediaworks didn't need our money

I've scanned in more documents about the Steven Joyce's Mediaworks bailout. The key one today: A September 2009 briefing by the Ministry of Economic Development on Mediaworks' financial position, titled RBA Licence Renewal Payments: Modelling of Options.

When the RBA had originally asked for a bailout, MED had modelled their costs and concluded that they didn't need the money. After Steven Joyce had decided he would proceed anyway, they asked Mediaworks and The Radio Network, the two biggest players, to open their books, and commissioned Deloitte to update their model. Their conclusion was that the companies were under some financial pressure. However,

the base case modelling suggests that, in the absence of any further deterioration in financial performance, the licence purchases at the prices contracted with the Ministry should be affordable without compromising the longer term financial viability of the companies.

This conclusion does not change, even for the worst-case scenario modelled. Each entity remains profitable (albeit at reduced levels) with interest cover nevertheless being tight against the assumed capital structure.

Deloittes did note that if revenue declined, the companies would be in trouble (a statement of the obvious), but that their underlying profitability was sound. They recommended a wait and see approach and reviewing the situation closer to when the payments were actually due. The Ministry noted that the companies had known about the need for these payments for a long time, that they had plenty of options available (e.g. asset sales, cost-cutting, or injecting capital) if they needed money, and noted a lack of evidence that such options had been explored before going to the government for a hand-out. They concluded:
Considering the above, the Ministry still does not see a strong case for the Government to accede to the RBA's request, a move which would place the Government in a credit-financing role in lieu of the existing market mechanisms. It is recommended that no further consideration will be given unless suitable evidence was provided by the affected broadcasters that all alternative avenues have been adequately explored.
This advice was ignored. Two weeks after the briefing was given, Joyce wrote to John Key seeking permission to bring an urgent paper to Cabinet on the issue. The letter made no mention of the modelling at all, and accepted at face value the RBA's claims that its members were too poor to pay, despite their books showing that the opposite was the case.