Nine Entertainment: stock overhang? - FT.com Skin in the game is all very well, but at what point does it become an overhang? Nine Entertainment's forthcoming listing - Australia's biggest in three years - will test this. A debt-for-equity swap last year saw Apollo and Oaktree, the hedge funds, wrest control of the free-to-air broadcaster from CVC Asia Pacific. Now Nine is offering one-third of its shares, made up of existing and new ones, in a move that will see Apollo and Oaktree's stake drop to 36 per cent from 53 per cent. Those remaining shares will be held in escrow until Nine's full-year results next August. The investment case for Nine is based on its share of the TV advertising market, from which it derives three-quarters of its earnings. There, it is neck-and-neck with rival Seven West Media with each having just under two-fifths of the market apiece. Ten Network is for now a distant third. Nine's price range puts its enterprise value at between 9 and 10 times this year's expected earnings before interest, tax, depreciation and amortisation - roughly in line with its local rivals. Seven trades on 8 times, according to Capital IQ, while Ten, before its earnings collapsed last year, was on 10. TV is cyclical and Nine's value is subject to many external factors. For instance, an early Aussie lead in the Ashes cricket series this month, to which it has the rights, could send income way over the boundary rope. The problem is that even if its shares were cheap, they will not rise much. Apollo and Oaktree can sell up to one-quarter each of their locked up stakes after its first-half results in February and if it meets an average price of 20 per cent above its float price for a set number of days. In other words, should the shares perform well, up to a 10th of the stock could suddenly drop into the market very soon with a further quarter up for sale in eight months. Communicating any plans will be key to limiting the overhang drag and getting the best price.