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Telecom NZ buys 12% of Sky

By Bloomberg, Singapore.CNET.com, Bloomberg on February 21, 2001

Summary

Telecom Corp, New Zealand's largest phone company, said it bought 12.1 percent of Sky Network Television Ltd for NZ$192.6 million (US$82.5 million).

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WELLINGTON--Telecom Corp, New Zealand's largest phone company, said it bought 12.1 percent of Sky Network Television Ltd for NZ$192.6 million (US$82.5 million).

Telecom paid NZ$4.12 a share for 46.7 million Sky shares owned by Tappenden Holdings Ltd, a privately held investment group whose owners include former Telecom director Alan Gibbs.

Telecom has developed products combining telephone and internet services with Sky's television services as it faces increasing competition in the same markets from Telstra Saturn Ltd, a unit of Australia's No 1 phone company.

"I'm looking forward to hearing how they expect to leverage this stake" as the worlds of telecommunications and entertainment converge, said Paul Robertshawe, New Zealand equities manager for Tower Asset Management, which has Telecom in the NZ$750 million it manages.

Telecom owns 10 percent of Independent Newspapers Ltd, New Zealand's largest publisher and owner of 49 percent of Sky. INL is 49 percent-owned by Rupert Murdoch's News Corp.

Acceptable price
Telecoms purchase of the stake is a defensive strategy, allowing it to block any full takeover and letting it seek a board seat, analysts said. Telecom officials weren't immediately available to comment.

"I've no idea how defensive it would prove to be," said Robertshawe. Still, it would take some "serious logic" to justify Telecom buying more shares at this time, he said.

Sky fell NZ$0.10 to NZ$3.75 before the announcement, which was made after the market closed. Telecom fell NZ$0.12 to NZ$5.22.

Analysts said the price paid by Telecom was acceptable given the strategic nature of the parcel, Sky's expanding subscriber base and the strength of the New Zealand dollar, which reduces the US-dollar-denominated cost of its program purchases.

While Sky fell to a low of NZ$2.60 in November, it placed 20 million shares in August at NZ$3.99 a share. The shareholding "would support the ongoing development of the business relationship between Telecom and Sky," Telecom Chief Executive Theresa Gattung said in a statement. "Our investment in Sky supports Telecom's transformation into an online and communications group at the forefront of convergence in Australasia."

Antitrust concerns
Last week Telecom and Sky announced plans to extend a partnership that has been offering joint telephone, internet and television services for the past year. The pair will offer the services nationally for at least two years.

New Zealand's antitrust regulator "is going to look into" the implications for the acquisition for the telecommunications market, said spokesman Vince Cholewa. "Its not a formal investigation," he said.

In 1995 the regulator cleared a proposal for Telecom to buy an indirect stake in Sky which was vigorously opposed by rival telecommunications companies. After a long court battle the objections were rejected. By this time, Telecom had decided not to proceed with the proposal.

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