Sophie Ryan is online editor for the Business Herald

Sky shares soar as investors back Vodafone deal

TV firm plans to pay $3.44b for telco’s NZ arm.

Shares in Sky TV soared as investors backed the pay-television company's plans to merge with Vodafone.

The planned tie-up would create a media and telecommunications group ready to make more content available on more devices, according to Sky TV chief executive John Fellet.

Sky said it planned to buy Vodafone NZ for $3.44 billion in cash and shares in a reverse takeover which would see Vodafone's British parent group own 51 per cent of the shares.

Vodafone NZ boss Russell Stanners would be chief executive and Fellet head of the media and content arm of the merged company.

"Having the expertise of one of the biggest telecommunication companies on the planet will certainly help get us on to more devices," Fellet said.

The merger would allow the two companies to strip out costs while continuing to offer bundled packages against offerings from Spark and its Lightbox service.

The companies claimed combined synergy benefits of $850 million at net present value or $1.07 per share. That included being able to access lower-cost set-top boxes through the larger Vodafone Group at discounts Fellet said he could only "dream of".

Sky's stock jumped 17.45 per cent yesterday to close at $5.25, which is lower than the $5.40 price at which Vodafone will be issued shares in the combined company.

Meanwhile, shares in Spark fell 5.02 per cent to close at $3.31.

Spark managing director Simon Moutter said his company already "competes hard" with Vodafone and did not see itself going head-to-head with Sky TV.

Moutter saw the real competition as global over-the-top players such as Netflix, YouTube, and Apple or with direct-to-consumer premium sports content owners.

Fellet said Sky content would not be exclusively offered to Vodafone customers, but some "exclusive packaging" deals could be possible.

The two companies have worked in partnership for the past 10 years offering bundled deals to consumers consisting of a Sky TV package, broadband and phone services.

Fellet said the opportunities in the past had fallen into three piles - one where Vodafone benefited but it wasn't such a value driver for Sky, one where Sky TV benefited and Vodafone didn't get so much, and one which hit the middle ground. "We can now attack all three piles," Fellet said.

Stanners said there were plans to harness the fibre network to bring Sky into homes, and connectivity in home devices was an area of innovation for both companies.

"We're really excited about bringing our digital and technological expertise together for what is undoubtedly the premium entertainment content in the marketplace to create new and exciting offerings and very competitive offerings in the marketplace," Stanners said.

Fellet said "triple play" tactics, where customers buy landline, broadband and pay-TV services from one provider, were common in overseas markets and the combined company could offer that in New Zealand.

The merged business would offer mobile streaming as well, upping their offer to "quad play".

A market insider said the merger was "a good option for two challenged businesses". "There's an awful lot of water to pass under the bridge in terms of the earnings projections, the synergies and the extra debt funding in the combined vehicles."

Analysts at UBS said the most obvious potential benefits were from reducing telecom customer churn and stronger internet TV penetration, while a key challenge was the potential cannibalisation of Sky's high TV market penetration, which is currently about 50 per cent.

"The potential bundling of exclusive content by the enlarged group may also prompt more heavy-handed regulation," UBS said. "It will also probably prompt a competitive response from Spark, especially around future digital rights for key sports content."

Sky TV chairman Peter Macourt said the two businesses were largely complementary and he didn't see any problems getting the required Commerce Commission approval.

The deal will be put before Sky shareholders in early July and is expected to be completed by year's end. additional reporting BusinessDesk

- NZ Herald

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