Sky merger to put $300m in market

Up to $300 million could flow back into the sharemarket in July if shareholders in Sky Television and cashed-up media company INL approve a merger.

Long-awaited details released yesterday reveal the new company would take on $500 million of debt.

Along with residual cash held in INL from the sale of its New Zealand newspaper assets, analysts estimate $750 million will be returned to shareholders.

While the bulk - including the $278 million that INL's 44 per cent shareholder News Corporation will receive - is not likely to be reinvested in New Zealand shares, up to $300 million could find its way back into the sharemarket via minority shareholders.

Analysts and fund managers expect that shareholders will approve the merger, which holds few surprises.

"It's the only offer that is fair for all shareholders," Forsyth Barr head of research Rob Mercer said.

Shareholders in Sky TV will get about $1.28 a share and one share in the company formed in the merger. INL shareholders will get about $1.75 a share plus 0.836 of a share in the new company, which like its predecessor will be called Sky Network Television.

"I think the majority of shareholders will look at this and say a stand-off - trying to get INL to pay a premium to Sky minorities - won't happen," said Mercer.

BT Funds Management owns shares in both companies. BTFM analyst Anthony Halls said the deal was a straight-forward tidy-up.

"The proposal appears to be fair and equitable to both Sky and INL shareholders."

Despite such views, INL shares fell 8c to close at $6.32 each, unwinding gains they had made against Sky shares in recent weeks. Sky TV shares rose 10c to finish at $6.90 each.

In a joint statement, INL executive chairman Ken Cowley and Sky chairman Peter Macourt said the scheme met their objective of providing fair value to all shareholders and ensuring there was no dilution of any shareholder's interest in the Sky business.

The major change from the scheme proposed by INL and Sky last August is that shareholders cannot choose a cash-only option. Shareholders will get more details in May, and vote on the deal at separate meetings in mid-June.

If the merger is approved, and also gets the go-ahead from the High Court, it will be completed in July, with payment to shareholders soon after. The combined company is expected to be one of the 10 largest on the sharemarket. That compares with Sky TV's existing ranking of 19th in the NZSX-50 Index.

Shareholders will benefit because the new company will also have a much higher portion of freely tradeable shares, making it more attractive to professional investors.

The cost of a separate head office for INL will be eliminated, and having debt on the balance sheet will also be more efficient.

Sky Television has paid off its bank debt, and analysts expect the new company will take on between $300 million and $700 million of debt.

The companies have yet to reveal who will be on the board of the new entity, how fast it might pay back debt and what dividends shareholders can expect.

Mercer expects the merged group could pay a dividend of about 23c in 2006 and 28c in 2007, a gross yield of 5 per cent and 6 per cent respectively.