Sky Network TV has announced it is planning to buy Vodafone New Zealand for $3.44 billion in cash and shares.
The cash component would come to $1.25 billion.
British parent Vodafone Group would have a 51 per cent interest in the combined group and Sky spokeswoman Kirsty Way told Fairfax that Vodafone NZ boss Russell Stanners would be chief executive of the merged firm.
"The Combined Group will offer New Zealand's best entertainment content across all platforms and devices in a rapidly evolving media and telecommunications market," Andrea Brady, head of communications at Vodafone, said in a statement.
The new Sky shares would be issued at $5.40 per share, representing a 21 premium to its last close of $4.47 a share.
"A merger with Vodafone NZ is the culmination of this process and the Sky board fully supports the proposed transaction and unanimously recommends that SKY shareholders vote in favour of the resolutions to implement the merger," Sky said in a statement.
Shares were trading again today after being put on a trading halt all day yesterday.
Telecommunications Users Association of New Zealand chief executive Craig Young said the merger could have a big impact on the market.
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.Video
"The worst possible outcome would be people having to be with Vodafone to get Sky. There's a lot of content on Sky that is quite important to New Zealanders, because there's quite a lot of sport sitting with Sky," Young said.
"We do have only one pay TV provider, so if we had the two come together and lock it all up, that would be considerable market power in both telecommunications and content."
Young said the status quo would be the ideal outcome, but expected Sky and Vodafone to offer packages with financial incentives to sign up to both, a sentiment echoed by Science Media Centre spokesman Peter Griffin.
"If you're a Sky customer it might make sense to choose Vodafone for mobile and broadband, particularly if there are financial incentives to do that," Griffin said.
"The pessimistic side of me says when you get consolidation like that, usually what that means is less choice and competition for consumers, higher prices and less options for ditching a supplier and going to another one."
Technology journalist Juha Saarinen said a merger would give Vodafone too big a market share.
"For them to have broadband and content, that would be too much for little old New Zealand."
The NZX-listed Sky yesterday was prompted by increasing media speculation to yesterday announce that the talks with Vodafone were underway.
"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 was 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 16c, to $3.48 yesterday as a direct response to the potential tie up between Sky TV and Vodafone.
Salt Funds management managing director Matt Goodson said yesterday that 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.
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.
