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Sky TV shareholders back Vodafone deal

Wednesday 6th July 2016

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Sky Network Television shareholders have today voted in favour of a proposed merger with Vodafone New Zealand that will create a 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 television subscriptions.

At a special meeting in Auckland today, shareholders cast their votes on three resolutions relating to the acquisition to incur new debt by Sky and issue shares to Vodafone, with 75 percent of the vote required to pass them. Votes cast at the meeting were overshadowed with 78.61 percent of the Sky TV shares on issue voted by proxy and overwhelmingly in favour of the merger.

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, in what amounts to a reverse takeover.

Sky will borrow $1.8 billion from Vodafone to fund the purchase and will have a higher debt post the deal.

Sky TV chairman Peter Macourt said the outcome was “fantastic” and the next step was getting Commerce Commission clearance which was likely to take up to six months.

He told shareholders the industry was at a crossroads with the internet having permanently changed the way people consume media and entertainment services.

“To stay ahead of the game, we must find new and innovative ways to deliver our content,” he said.

Sky has said there’s potential for the current triple play offerings – fixed line voice, fixed-line broadband and pay television services - into a quad-play by adding mobile.

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.

Macourt said while Sky had an existing partnership with Vodafone it was difficult with two listed companies to find common ground to exploit the opportunities in front of them.

Expected savings from the deal, after integration costs, are around $850 million at net present value.

Shareholders have been told they can 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.

In the fine print underlying the deal, Sky committed to paying a termination fee of up to $21.5 million to Vodafone if it doesn’t proceed under certain circumstances specified in the sale and purchase agreement – mainly where a competing proposal emerges or Sky directors change, withdraw, or modify their recommendations for it or speak out publicly against it.

Sky shares fell 0.6 percent to $4.75, having gained 4.1 percent so far this year.

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