Vodafone-Sky TV turn of merger appeal

The decision to cancel Sky TV and Vodafone’s merger appeal was mutual, with the costs likely to outweigh the benefits, says the pay TV company’s chief executive, John Fellet.

A planned $3.44 billion media merger between Sky TV and Vodafone was declined by the Commerce Commission earlier this year, mainly because of Sky’s monopoly on premium sport content. The commission argued that a merger would substantially lessen competition.

The two companies were planning to appeal until the weekend, when Fellet said a mutual decision was made to cancel.

“The more we started looking at this, the more it looked like we could acquire the synergies without having to go through the merger,” Fellet said.

“My attorneys were telling me the merger could take a year, we could probably bank on it being at least a million dollars and then it would still be a coin flip on whether you win or lose.”

Fellet said that even if the appeal had succeeded, the company would need to go through another shareholder vote and then decide on company valuations, which had taken six months the first time.

“At the end of the day I’d rather use that million dollars for additional content for my customers,” he said.

In a statement to the NZX detailing the termination of the sale and purchase agreement, Sky said it would continue to work closely with Vodafone to strengthen commercial relationships for the benefit of its consumers and shareholders.

Vodafone chief executive Russell Stanners declined to comment, other than to say he was looking forward to the continuation of the company’s partnership with Sky.

The two companies have already been working on a number of joint initiatives including an All Black app, offering significant discounts for customers signing up to Sky and Vodafone broadband, and giving away free Sky Sport to new and existing Vodafone customers for a year.

Fellet said though Sky TV had a good working relationship with Vodafone, it was happy to talk to any other telco, although he said none had shown interest until the proposed merger was announced.

In a statement, rival telco Spark said given the importance of access to premium sports content, which it said was exclusively controlled by Sky, any commercial deal should be made available to Spark and other service providers on equivalent terms.

“We’ve been consistent about the fact that it would be in the interests of New Zealand consumers if Spark and others are able to work with Sky to deliver premium sports content in innovative and exciting ways.”

Shareholders reacted quickly to the news, with Sky TV’s share price falling as low as $3.22 yesterday morning — the lowest level since 2008 — before eventually closing down 2.1 per cent at $3.32.

Fellet said he could not comment on the company’s valuation, stating that he could only continue to try to drive value.

Sky TV would continue to add value for its customers through more deals and added content, he said.

Forsyth Barr analyst Blair Galpin said the appeal process was likely to have taken much longer to go through.

“Our view has been that we haven’t put any stock into an appeal process given the length of time they tend to take which is potentially three or more years,” Galpin said. “So that was the decision the companies had made, but it was too far out for us to look at basically. This doesn’t change our position or our view.”

The merger would have seen Sky TV buying Vodafone NZ for $3.44b, funded by a payment of $1.25b in cash and the issue of new Sky TV shares at a price of $5.40 a share. Vodafone would have become a 51 per cent majority shareholder in Sky TV, in what amounted to a reverse takeover.

My attorneys were telling me the merger could take a year, we could probably bank on it being at least a million dollars and then it would still be a coin flip on whether you win or lose. John Fellet, chief executive Sky TV