Vodafone N.Z. Merges With Pay TV Leader in $2.4 Billion Dealby
Combined company brings together TV, internet and mobile
New group to have enterprise value of NZ$3.44 billion
Vodafone Group Plc’s New Zealand business and the country’s largest pay-television provider, Sky Network Television Ltd., agreed to a NZ$3.44 billion ($2.4 billion) merger as they grapple with increasing competition.
The global mobile-phone operator will own 51 percent of the combined entity, the companies said in a joint statement Thursday. Sky Network is issuing new stock to the Newbury, England-based company.
Vodafone’s New Zealand customers and revenue have barely risen in the past two years while Sky Network’s earnings are falling, filings showed Thursday. The pay-television leader is facing competition from Internet entertainment companies such as Netflix Inc. and a domestic offering, Lightbox, from Spark New Zealand Ltd.
Sky Network hasn’t done enough to deal with the threat and a union with Vodafone gives the pair more scope to sell each other’s products, according to Fat Prophets.
“They’re probably waking up and smelling the coffee,” said Greg Smith, head of research at Fat Prophets. “Sky has certainly been pressured into doing this. Combining with Vodafone is going to be quite a powerful combination.”
Sky Network’s shares surged 17 percent to NZ$5.25 at the close in Wellington. Vodafone stock declined 3.9 percent to 222.10 pence at 8:10 a.m. in London.
Under the terms of the union, Vodafone will buy new shares in Sky Network for NZ$5.40 apiece, 21 percent more than the stock’s previous closing price. Sky Network will also pay NZ$1.25 billion in cash. The combined group has an enterprise value of NZ$3.44 billion, according to Thursday’s statement.
Rupert Murdoch’s News Corp. sold its 44 percent stake in Sky Network in 2013 as the media company prepared to split its publishing and entertainment units.
Vodafone NZ Chief Executive Officer Russell Stanners will be CEO of the combined group, while Sky Network Chairman Peter Macourt will be its chairman. Sky Network was advised by Citigroup, while Deutsche Bank AG and Deutsche Craigs advised Vodafone.
The deal brings together New Zealand’s No. 1 cell phone provider, with more than 2.35 million mobile connections, and a pay-TV operator with 830,000 subscribers.
The new company, which will be a unit of Vodafone, is forecasting pro-forma revenue of NZ$2.9 billion and underlying pre-tax earnings of NZ$786 million in the year to June 30, 2017, according to the statement.