Investors' sweetener in Sky merger

The boards of pay TV operator Sky TV and 78 per cent owner Independent Newspapers have approved their companies' merger, with a couple of sweeteners for INL shareholders.

INL said yesterday it would pay a fully imputed special dividend of 1.5c a share on May 27 and, under the merger scheme, INL investors would get $1.78 cash a share instead of the $1.75 indicated last month.

But INL said the increased per share offer was simply a result of a new mathematical equation based on a review of the cash it would have in the bank on merger day, now calculated to be $260 million. An analyst said the increased offer was "not material" and was more in line with market expectations of INL's cash position at merger time.

Sky TV shares closed down 10c at $6.40 while INL shares closed at $5.96, down 4c.

After separate board meetings yesterday, directors of the two companies said in a joint statement that under the merger scheme, Sky TV shareholders would receive $1.28 a share and one share in a new company, to be called Sky Network Television, for each Sky share. Each INL shareholder would get $1.78 a share and 0.836 of a share in the new company.

INL general manager Sean Wynne said: "all shareholders would get exactly what they own on a pro rata basis".

The maths of the deal, which Wynne believed were well understood by the mainly professional investors in each company, are: If you divide $500 million (new debt) into the shareholder base of INL on a 0.836 basis, you end up with $1.28 being paid to a Sky shareholder; 0.836 of $1.28 is $1.07.

A Sky shareholder gets $1.28 a share plus one new company share.

An INL shareholder gets $1.07 a share, plus 71c, which is INL's $260 million cash in the bank at the time of merger divided by the share capital of the company. The scheme provides for the new company to buy all of the shares in INL and Sky. The three companies would merge, resulting in Sky Network Television.

Merger documents will be posted on May 19. The scheme will be put to shareholders at special meetings on June 13. High Court approval is required. If the merger gets all the green lights it needs, it should be completed by July 1.

A successful merger could mean an injection of around $300 million for the NZ sharemarket. This has been calculated by analysts on the basis of the new debt of $500 million to pay shareholders for their shares, plus residual cash held in INL from the sale of its NZ newspaper assets. This could be about $750 million to be returned to shareholders.

The deal

* Merger of Sky TV and INL will form Sky Network Television.
* Sky shareholders to get $1.28 a share plus one SNT new share.
* INL shareholders to get $1.78 plus 0.836 of a new share.
* Merger documents will be out on May 19.
* The vote on June 13.