New Zealand’s Sky Television and UK-owned mobile phone company Vodafone plan to merge their New Zealand businesses to create the country’s biggest media company valued at $NZ 3.4 billion. The transaction is effectively a partial takeover of Sky TV by Britain’s Vodafone Group.
It will be the second proposed media merger in a month. The deal will see Vodafone emerge with a controlling stake in Sky, meaning it will revert to being foreign-controlled for a second time.
News Corp sold its minority stake in early 2013 ahead of the split in the Murdoch empire at the end of June of that year.
The latest deal comes after APN News and Media announced the spin-off its Kiwi print and radio interests, and then the merging of those with of Fairfax Media.
That deal is still in the planning stage with regulators, led by the NZ Commerce Commission being asked for approval of what seems, on the surface, to be a competition-reducing transaction.
Sky TV will first “buy” Vodafone New Zealand in a deal that would value the loss-making telecommunications firm at a massive $NZ3.4 billion. But the purchase will see British-based Vodafone Group emerge with a 51% stake in the combined business, giving it effective control.
Shareholders in Sky will go from owning 100% of their company, worth more than $NZ1.7 billion, to owning around 49% of a much larger company valued at double that amount, but with additional interests in mobile telco services.
Vodafone NZ boss Russell Stanners will be CEO of the merged firm, while Sky TV boss John Fellet has agreed to stay on for two years as chief executive of its pay television arm (the old Sky and he is the biggest loser from the deal).
Like the APN and the Fairfax deals, this transaction will he deal need shareholder and Commerce Commission approval.
“The Sky board and management have conducted a review of Sky’s strategic options to deliver long term value creation for shareholders," Sky said in a statement to the NZX.
"A merger with Vodafone NZ is the culmination of this process and the Sky board fully supports the proposed transaction and unanimously recommends that Sky shareholders vote in favour of the resolutions to implement the merger."
Sky said in statement that an independent adviser it appointed had said that Sky TV shareholders would be “clearly” better off under the deal than if Sky TV remained a standalone business.
Under the terms of the agreement, Sky will acquire all shares in Vodafone NZ and then issue new shares to UK-based Vodafone at $NZ5.40 a share, a 21% premium to Sky’s last close. Sky TV will also pay Vodafone $NZ1.25 billion and issue shares to Vodafone. Sky shareholders will get a minority 49% company, which would remain listed on the NZX and ASX.
The $NZ3.4 billion valuation for the Vodafone NZ business comes despite it losing $NZ121 million in the year to April 2015.
But what is odd is that in the space of several months Vodafone NZ has gone from being a possible seller of its assets to TPG, the rapidly growing Australian telco, to being the dominant media/telco firm in the country – which is quite a turnaround.
Peter Macourt, Sky Chairman, said in today’s statement:
"The merger with Vodafone is a transformational strategic step for our company. The transaction is also highly attractive to our shareholders. Our shares are being issued at a premium to market price and shareholders also participate in the substantial synergy benefits we expect from the transaction."
The combined company is expected to have pro-forma revenue of $NZ2.9 billion.
