SkyTV and Vodafone NZ announced yesterday they are merging to create a large integrated telecommunications and media group in New Zealand.
However, the enlarged group will be controlled from the United Kingdom, as Vodafone Group will become a 51% shareholder in the combined group.
The deal, worth $3.44billion, is the largest to be carried out in New Zealand since the sale of the National Bank to ANZ Bank in 2003.
SkyTV shares rose 17% to a month-high $5.25, still below the $5.40 price at which Vodafone would be issued shares in the combined company. Spark fell 2.6% to $3.36, the lowest since late February.
Vodafone NZ is the country's largest mobile and second-largest broadband provider, with 2.35million mobile connections and more than 500,000 fixed line connections.
SkyTV has 830,000 subscribers.
Forsyth Barr broker Suzanne Kinnaird said a combined entity would allow Vodafone to better compete in the residential telecommunications market.
SkyTV had on-demand and mobile rights which it had not demonstrated expertise in developing.
Vodafone could deliver that expertise.
"The potential impact on the telecommunications market will be significant. This merger will change the rules.''
Content would become Vodafone's point of difference, she said. With access to the full suite of content rights owned by SkyTV, Vodafone could develop solutions across movies, TV series and sports for both fixed and mobile customers.
The Commerce Commission previously found sport content was not critical to develop pay-TV services and Coliseum-BelN had demonstrated other rights were available.
The world was going mobile across tablets, phones and laptops while content was increasingly a broadband-delivered service, Ms Kinnaird said.
For SkyTV, it had been acquiring on-demand and mobile content rights but it had been slow in its attempts to monetise those and, often, its solutions had failed to meet the expectations of potential customers.
Vodafone had expertise in delivering information across both fixed and broadband mobile networks and could help delivery of those services.
Any cost benefits were likely to be limited from a merger.
The benefits would be around better utilisation of SkyTV's content rights and improving the Vodafone share of the telecommunications market, both fixed and mobile.
Decisions concerning wholesale services, particularly mobile content, could face regulatory review although previous determinations had pointed to a wealth of content available for competing services to be built up, Ms Kinnaird said.
SkyTV chairman Peter Macourt said the merger was highly attractive to shareholders.
SkyTV shares were being issued at a premium to market price and shareholders also participated in the substantial benefits expected from the transaction.
Sky chief executive John Fellet said the company already had an "excellent partnership'' with Vodafone.
Bringing together the two complementary businesses was in the best interests of shareholders and customers.
The combined group would offer new packages with Sky's premium entertainment content and Vodafone NZ's communications and digital services of the future.
In a document released to the NZX, SkyTV and Vodafone said the merged company would generate cost and capital expenditure savings of about $415million, or 52c per share, after integration costs.
They also expected to have access to lower cost set-top boxes through the larger Vodafone Group that might reduce the amount of satellite transponder capacity required as they increased delivery of content through the internet.
Spark managing director Simon Moutter said his company already competed hard with Vodafone but did not see itself going head-to-head with SkyTV.
"The real competition in the future of media is with global over-the-top players like Netflix, YouTube and Apple or with direct-to-consumer premium sports content owners.''
SkyTV aims to borrow $1.8billion from Vodafone to fund the purchase, repay its existing debt and fund the working capital needs of the group after the merger.
The deal already has the unanimous backing of SkyTV directors.
A shareholder vote is expected in early July, in which at least 75% of votes cast need to be in favour.
Grant Samuel said in an independent report: ‘‘SkyTV shareholders will clearly be better off if the proposed transaction proceeds than if SkyTV continues as a stand-alone entity''.
The price and terms of the share issue were fair, the report said.
The deal
• SkyTV and Vodafone NZ will merge in a $3.44billion deal made up of new SkyTV shares and $1.25billion in cash.
• United Kingdom Vodafone Group will take a 51% and controlling stake in the new group.
• Vodafone NZ chief executive Russell Stanners will lead the enlarged company and SkyTV chief executive John Fellett will report to him as head of media content.
• Sport will be a deal breaker for SkyTV and Vodafone plans.
