NZ Rugby thumped by Sky TV's capital raise

Sometimes you get caught out. Photo / Getty

Sky Network Television revealed today NZ Rugby did not participate in its $157 million rights issue, which closed Monday - which means the union's stake in the pay-TV broadcaster has been heavily diluted.

What was once a 5 per cent NZ Rugby stake worth just over $20 million as part of an "innovative deal" is now a 1.5 per cent holding worth just over $3.1m based on the current share price.

NZ Rugby was granted its 5 per cent share of Sky as part of the pair's new five-year Sanzaar deal, which kicks off next season (understood by the Herald to be worth a total $400m over five years).

The October 2019 deal saw NZ Rugby issued with just over 21.8m Sky shares at 92 cents, valuing them at $20.06m.

Last week, Sky issued cheap shares in a bid to shore-up its balance sheet. The heavily discounted rights issue saw $157m of new equity priced at 12c per share- a 63.6 per cent discount on last Wednesday's closing price of 33c (the stock was recently trading at 15.2c).

Hamilton Hindin Greene adviser Grant Davies calculated it would cost NZ Rugby some $7.4m to participate in the rights issue and maintain its stake at 5 per cent.

Clawback on broadcast rights

Today, there was no further news on a second headache for NZ Rugby: attempts by Sky to claw back money on existing broadcasting contracts, where content has been decimated by the coronavirus.

"For some sports contracts Sky has a reasonable expectation of a negotiated reduction in sports programming rights costs broadly proportionate to the content delivered," Sky said in a May 21 investor presentation.

Sky still won't say how much it's looking to claw back, but this morning a spokeswoman said, "Our ongoing discussions with NZ Rugby and Sanzaar concerning the Covid-19 impacts to date, and the underlying agreements, remain unaffected by the change in shareholding.

"NZ Rugby is an important partner and we are both committed to our long-term relationship. We respect their decision to not participate in the Sky offer given the financial challenges presented by Covid-19. We're looking forward to getting back to delivering exciting live rugby, with the Investec Super Rugby Aotearoa kicking off in 10 days."

RugbyPass owners also sit it out

The Herald understands that the former owners of RugbyPass (who include rich lister Peter Cooper and ex-CEO Tim Martin), also declined to participate, meaning their 5.75 per cent stake will have been similarly diluted. Sky bought international streaming player RugbyPass last year in a cash and scrip deal worth up to US$40m.

Sky said the $157m issue was snapped up by institutional investors. An NZX filing invoking Morgan Stanley was posted yesterday, then retracted because the shares involved had yet to be issued.

A filing today said that Hong Kong-based Jupiter Asset Management did participate in the rights issue, lifting its stake to just under 11 per cent.

In April, Jupiter disclosed it had built up a 5.1 per cent stake in Sky.

Fat Prophets research head Greg Smith who predicted that Sky shares could reach $2 within two years pre-Covid, now has a 12-month target of 55c.

NZ Rugby has two extraordinary restrictions on its Sky shares, according to a November 2019 NZX filing.

The union must hold its stake for a minimum of two years, and give Sky at least 10 working days notice if it wants to sell its shares the restricted term expires.

Sky had no comment this morning on its anticipated final purchase price for RugbyPass, which it took over in August last year.

The purchase price was US$40m, with consideration made up of US$10m cash and issuance of new Sky shares of US$20m at completion, and the remaining US$10m payable in cash during an agreed earn out-period.