Pay TV operator Sky Network Television said it was in talks with Vodafone Group regarding a possible merger of their New Zealand operations.

The NZX-listed company said that, following recent media speculation, it was in talks with Vodafone regarding a potential transaction involving a combination of the businesses of Sky and Vodafone New Zealand.

"The discussions are ongoing and incomplete and may not result in a transaction occurring," Sky TV said in a statement.

There has been speculation for several months that Vodafone is looking to sell its New Zealand operations, with Sky TV tipped as a possible option.


Vodafone's biggest competitor in New Zealand - Spark - saw its share price drop 13c or 3.6 per cent, to $3.51 as a direct response to the potential tie up between Sky TV and Vodafone.

Salt Funds management managing director Matt Goodson said Vodafone globally was moving down the television route "so maybe it makes some sense".

"The businesses are of reasonably similar size in terms of EBITDA (earnings before interest, tax depreciation and amortisation) that they generate, however Vodafone's has been in decline," Goodson said. Until recently, Sky TV's earnings have been growing.

In a separate statement, the NZX said Sky TV would remain in a trading halt "until the release of a further announcement".

New figures show paid streaming services such as Netflix, Lightbox and Neon are doing very well with New Zealand viewers.

More than a year after Netflix launched here new research confirms the subscriber streaming service is the most popular with Kiwis, with more than 264,000 paid subscribers by the end of 2015.

According to the report, one in four Kiwis had access to a paid video-on-demand service by the end of last year, including 128,000 signed up to Lightbox and 22,000 subscribing to Sky's Neon service.

Vodafone NZ had $1.96 billion of sales in its 2015 year, but that was eclipsed by expenses and one-time costs, resulting in a net loss of $120.7 million. Total assets were $2.2 billion, while financial liabilities including trade creditors was $1.95 billion. Sky TV's market capitalisation is $1.7 billion.


Sky's shares were halted pending the announcement, having last traded at $4.47 and having declined 28 percent in the past 12 months, The stock is rated a ''hold'' based on the consensus of seven analysts polled by Reuters, with a price target of $4.61.

Speculation around the deal is that Sky Television chief John Fellet and his board disagree over how to spend the company's money. It is thought Fellet favours returning cash to shareholders while the board is interested in acquisitions.

Citibank, brought in to advise, may end up being a referee in the dispute.

Vodafone sale?

It has been rumoured for months that Vodafone global was looking to sell its New Zealand operations, with Australian based TPG tipped as a possible buyer. However market chatters suggests that deal fell through a few months ago, at which point Sky TV entered the picture.


The possible merger is likely a reaction to Spark's content production through its on-demand service Lightbox - as well as an opportunity for both parties. Until now, Vodafone has not had its own content. A deal could see Sky TV distribute its content through Vodafone's network, allowing customers to watch online.

Sky TV has already been moving from a satellite to online streaming model so a partnership with Vodafone would allow this to be turbocharged. For two companies facing different but related market pressures, content for Vodafone and distribution for Sky could be a win-win, and a natural extension of a business relationship which already sees the two partnering together for some bundled services.

What now?

Sky TV shares are on hold pending a further announcement. The transaction may or may not go through but if it does, eyes will turn to Spark to see its reaction.

- with Holly Ryan and BusinessDesk.