Fairfax/NZME deal may delay ComCom's Sky/Voda decision, Fellet says
Sky Network Television [NZX: SKT] chief executive John Fellet says he's concerned the proposed merger between the country's dominant publishers, NZME and Fairfax NZ, could slow down clearance for Sky's planned tie-up with Vodafone New Zealand, which was overwhelmingly approved today by its shareholders.
The pay-TV company is expecting it will take at least six months to get Commerce Commission approval for its merger, with Fellet saying the commission had no extra staff to deal with "two of the biggest mergers this year than they've had in any other year".
Overseas Investment Office approval is also required, which Fellet said he understood related to Vodafone mobile network cell-site towers near the ocean, which qualify as sensitive land. "If necessary, they could shut those down," he said.
At a special meeting in Auckland today, Sky's shareholders voted in favour of the proposed merger with Vodafone to create a telecommunications, media and entertainment provider with combined 2016 revenue of more than $2.9 billion and more than 3.7 million separate mobile and fixed connections and pay-TV subscriptions.
Some 78.61 percent of the Sky TV shares on issue were voted by proxy and overwhelmingly in favour of the merger at today's meeting. The final tally showed 99.96 percent in favour of the resolutions.
Under the proposal, Sky will purchase Vodafone NZ from its parent company for $3.44 billion, which will be funded by a payment of $1.25 billion in cash and the issue of new Sky shares at a price of $5.40 per share. Vodafone becomes a 51 percent majority shareholder in Sky, which will boost its debt by borrowing $1.8 billion from Vodafone to fund the purchase.
Fellet said while they awaited the outcome of the regulatory hurdles, it was business as usual for both companies. Recruitment would prove difficult in the interim because people are reluctant to sign to an organisation where there's uncertainty that the job will last, he said.
Although both Sky and Vodafone will focus on managing their own businesses, Fellet said there were likely to be discussions ahead of time on the merger process, including choosing a change management firm that could help meld the two.
"With NZME and Fairfax it looks like there is an overlap and in our case there is not a huge overlap. A change management firm will help us move through this process."
An independent report by Grant Samuel concluded that Sky TV didn't have an attractive future as a standalone pay-TV business because it faces increased rivalry and a fundamental deterioration in its strategic position over the long term. Sky's earnings have been in decline as it loses subscribers on its dominant satellite TV service and faces higher content charges because of increased competition from internet-based services such as Netflix. Grant Samuel said the price and terms of the deal were fair.
Sky chairman Peter Macourt said while Sky had an existing partnership with Vodafone, it was difficult for two listed companies to find common ground to exploit opportunities.
Expected savings from the deal, after integration costs, are around $850 million at net present value.
Shareholders have been told to expect increased dividends from the strong cash flow of the combined group, with the intended payout range equivalent to total declared dividends of between 31.9 cents and 37.5 cents per share for the 2017 financial year.
Sky shares fell 0.8 percent to $4.74, having gained 4.1 percent so far this year.