Photon Delays Recap but Makes Progress over Earn-Outs

Embattled Australian group Photon has given its first formal market update in almost a month, confirming press reports that it is struggling to refinance. However, CEO Jeremy Philips is said to have succeeded in renegotiating earn-out agreements with execs at most of its key subsidiaries.

Regular reports in The Australian and Australian Financial Review have filled the information vacuum as Photon remained silent over the last four weeks. The group remains suspended from the Australian Stock Exchange (ASX), as it has been since June 7th.

Photon's attempted recapitalisation - sized at $115m by one report - will require more time to come together. The statement said Photon 'anticipates being able to update the market in relation to its review by the end of next week.'

However, Philips appears to have won one battle, last night persuading execs at key agency Naked Communications to join other bosses including those at major subsidiaries BMF and BWM, in agreeing a change of earn-out provisions. Founders of Photon's acquired agencies will now get more shares and less cash, and will reportedly have payments linked to Group performance instead of that of their individual agencies. Photon's earn-out liability previously stood at $170m - it is not yet clear how much the current deals will reduce this.

Newspaper The Australian, owned by Philips' former employer News Corporation, quotes 'a source close to Naked' (sic) as saying that the new CEO had 'been bloody brilliant' since arriving last month and 'has our support'. Naked cost Photon $36.7m in February 2008 and was thus one of the biggest buys in the $200m acquisition spree which brought it to ownership of around fifty agencies.

The Australian has published a piece questioning why Photon remains suspended from the ASX and says 'A case could be made that the ASX should never have agreed to the suspension in the first place.' Shares were trading at $1.02 when trading was suspended: after the recapitalisation stock will reportedly be issued at 10c.

Web sites: www.photongroup.com and www.theaustralian.com.au .