Telecom bonus in the wind from media buyup

By PETER GRIFFIN

The proposed $1.2 billion purchase of publisher INL by Australian media group Fairfax could prove a bonus for Telecom shareholders. Some analysts expect Telecom to offload its 12.3 per cent stake in Sky TV for about $200 million in cash.

Several scenarios are emerging for Telecom's minority shareholdings, which include 9.3 per cent of INL and 12 per cent of Sky.

A research report on the subject from ABN Amro suggests INL, left with a massive pile of cash, will look to take full ownership of Sky, buying out Telecom in the process. INL already owns 66 per cent of Sky.

"Our view is that INL will use the $1.188 billion it gets from Fairfax to pay off its $425 million of debt and to buy out the outstanding 33.75 per cent of Sky," the report read.

That could result in a cash payout of $200 million to $230 million to Telecom, and may bring forward its target for increasing its dividend payout.

Yet another scenario sees Telecom also divesting its INL stake, generating up to $160 million in cash.

But Telecom is yet to clinch a content deal with Sky to replace the defunct Sky-Fi deals that packaged high-speed internet access with phone and pay TV services. Negotiations around a new, more extensive deal are ongoing and a continued shareholding gives it strength at the bargaining table.

"Telecom will use the leverage of its blocking stake to cut a deep long-term content deal with Sky," ABN Amro predicted, "then take the payout for its Sky stake knowing that its 9.3 per cent holding in INL is enough to cover any lingering worries it may have about being left out of Sky's next content development."

Telecom's head of corporate affairs, Philip King, said Telecom was keen to maintain a shareholding in Sky, regardless of its structure moving forward.

"We don't know what INL or News Corp for that matter are going to do around the straight sale of the print media assets.

"But strategic shareholding in Sky is an important part of our converged future."

With a 45 per cent stake in INL, Rupert Murdoch's media conglomerate News Corp may look for a bigger chunk of Sky.

Forsyth Barr analyst Jeremy Simpson said News Corp would likely pursue full ownership of Sky, either through INL or directly. He expected Telecom to retain an interest in Sky.

"Telecom's combined ownership of Sky directly and indirectly is around 17 per cent, they don't need to own that much of Sky. Whatever happens I'd assume Telecom ends up owning a stake in the company that owns Sky."

ABN Amro was picking Todd Communications to sell its 14.7 per cent stake in INL if the price was attractive. The purchase price for the minority holdings in Sky was estimated at $4.40 per share.