Vodafone's New Zealand Unit to Merge With Sky Network Television
June 09 2016 - 1:50AM
Dow Jones News
Vodafone Group PLC plans to add pay TV to its New Zealand
operations through a 3.44 billion New Zealand dollar (US$2.44
billion) merger of its local unit with Sky Network Television, as
the world's big telecommunications companies continue to pivot
toward TV and online video.
Sky said Thursday it will issue new shares to Vodafone at
NZ$5.40 a share—a 21% premium to its last closing price before
trading was halted Wednesday—and pay NZ$1.25 billion in cash,
giving Vodafone a 51% stake in the combined entity. Russell
Stanners, currently chief executive of Vodafone New Zealand Ltd.,
will head the new business.
The move follows a trend by telecommunications companies to do
deals that will help them bundle media content into their offerings
to differentiate themselves from competitors and reduce customer
churn.
Last year, AT&T Inc. acquired U.S. satellite-television
company DirecTV for US$49 billion, and Verizon Communications Inc.
acquired AOL Inc., for US$4.4 billion, gaining technology that
plays videos and serves up ads.
While U.K.-based Vodafone, the world's second-largest mobile
carrier, behind China Mobile Ltd., once focused on selling only
mobile-phone subscriptions, it has been investing heavily in recent
years in adding fixed lines for cable television and broadband,
enabling it to sell combo packages with both wireless and fixed
line services.
Last year it announced plans to launch television services in
the U.K. to boost revenues amid greater competition from incumbent
players who had been strengthened by a round of industry
consolidation.
For Sky, the deal with Vodafone comes as it struggles to battle
competition from on-demand and streaming content providers such as
Netflix Inc.
"It's a real survival strategy," said Morningstar analyst Brian
Hann. "By going down this route they have basically admitted that
as a stand-alone pay-TV single product company, we simply can't
compete."
Sky is the leading pay TV operator in New Zealand with more than
830,000 subscribers serving almost half of all New Zealand
households.
However, profits fell last financial year as it ramped up
investment in content deals to try to compete with rivals, and the
company surprised the market in May by forecasting subscribers will
be down the second half of this fiscal year as many customers who
had signed up for last year's Rugby World Cup decided not to renew
their contracts.
Its efforts to move into new areas such as on-demand TV and
over-mobile streaming have lagged behind competitors and been
marred with technological glitches.
Basketball fans hoping to watch New Zealander Steven Adams and
his Oklahoma City Thunder team take on National Basketball
Association reigning champions the Golden State Warriors in San
Francisco via the Sky Go app were disappointed last month. Live
streaming on the app stopped working around tip-off and was down
for the majority of the game -- one of the biggest of the year for
New Zealand basketball fans.
Analysts said Vodafone can provide Sky with much-needed
technology investment and expertise to ensure its content is
available at all times, across multiple devices.
Vodafone is the biggest provider of mobile-phone services in New
Zealand with more than 2.35 million connections and is the No. 2
fixed-line competitor with more than 500,000 broadband and
home-phone connections. Already, it provides Sky TV packages to
customers via a wholesale relationship between the two
companies.
The combined group will be one of the largest companies listed
on the NZX Main Board, and will have a revenue of NZ$2.914 billion
in the year ending June 2017, Sky said.
Still, some analysts are questioning how long Vodafone will
remain in the market.
"New Zealand is a very marginal, mature market for Vodafone to
parent, so questions can always be asked" about what Vodafone is
doing in New Zealand," said Morningstar's Mr. Hann. "That's now in
a ready-made exit vehicle and later on down the track they can sell
it more easily."
Sky shareholders will vote on the deal in a meeting scheduled
for early July.
Write to Rebecca Thurlow at rebecca.thurlow@wsj.com and Kate
Geenty at kate.geenty@wsj.com
(END) Dow Jones Newswires
June 09, 2016 01:35 ET (05:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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