Sky did not immediately respond to a question about the offer threshold that would trigger a shareholder vote.
Analysis of MediaWorks' number is complicated by the sale of its television operation to Discovery in 2020 (leaving it with its radio and billboard business), which has lost money, generated no cash flow over the past five years, and has net debt of around $95m. ForBarr's Ibbotson and Montgomerie estimate operating earnings of around $30m per year or a trailing enterprise value/ebitida multiple of around 11.
"Even allowing for a meaningful post-Covid recovery and substantial synergies we find that to be a difficult transaction to sell to shareholders," they say.
As news of the deal broke yesterday, analysts were scratching their heads over the commercial logic of a potential takeover.
"It's not an intuitive deal," Ibbotson told the Herald, while Morningstar's Brian Han called it "puzzling".
Spinoff founder and media commentator Duncan Grieve did see several areas where the deal could add value. He saw a possible 24-hour news channel, ads on Neon and marketing benefits for Sky as it used unsold inventory on MediaWorks' radio stations and outdoor advertising network to promote itself - something that would be easier on today's digitised billboards.
But today, a former Sky insider noted to the Herald that synergies never materialised in the 2000s, when the Newscorp-backed Independent Newspapers Ltd (a precursor to Stuff) had a significant stake in the pay-TV broadcaster (which ranged between 44 per cent and 49 per cent). A plan to network-sell ads across Sky's channels and INL's newspapers was never fully realised.
Sky shares fell 7.2 per cent to $2.45 yesterday after the MediaWorks negotiations were concerned. Craigs' Mark Lister said while Sky had developed a strong balance sheet and net cash position (expected to be $140m by year's end), investors seemed "apprehensive" that buying MediaWorks was the best use of its money.
In early afternoon trading, shares were down another 3.67 per cent today to $2.36 (for a market cap of $412m) but the stock is still up 45 per cent for the year.
Craigs said in a note to clients this morning that Sky offered no extra details in a conference call for analysts yesterday. In a brief NZX filing on Tuesday, the pay-TV operator said it was in exclusive talks with MediaWorks, and that the deal would need investor approval, it would not require the company to raise new equity.
Although an indication of the minimum price can be extrapolated from the shareholder-approval requirement, the price remained a known unknown.
And with Sky playing its cards close to its chest at this point, its plan to extract value could only be guessed at.
Investor sentiment could turn around once those elements became apparent.
"Ultimately, we think the market will judge this deal based on the price paid and the level of synergies," Craigs said.
