Empowering Customers through Convergence: A New Era for Vodafone and Sky TV

The merger between Vodafone and Sky Television Network will create a market leader in the country, offering new services to subscribers, combined benefits to both companies, creation of a wider customer base, and attractive packages to customers. The merged entity will also be able to utilize high-speed broadband infrastructure, invest in technology or customer experience, and reap the benefits of Vodafone's global support. The synergy created through this merger is expected to reach NZ$435 million, which can be invested in areas such as technology improvement or customer experience enhancement.

SKY television network and Vodafone NZ merger

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Report to the existing and prospective stakeholders of the company
Company background
The company sky was founded more than two decades back and has as of now become the
New Zealand’s largest television network providers in the world. The company has been able
to make growth in the last two decades and has grown from the team of 10 people to a team
of 1000 people working in New Zealand. The chairman of the company is Peter Maourt. The
John Fellet is the Director and Chief Executive Officer of the company (Sky.co., 2016).
Business Performance Overview
The company is registering excellent growth in terms of revenue for the past several years. In
the year 2016, the company was able to register $928 million revenue over $927 million
revenue in the year 2015. The company has made a huge leap in revenue from the year 2014
where its revenue was $909 million. Below is the chart of revenue performance of the
company (skynz.akamaized.net, 2016) -
Year revenue ($ millions)
2012 843
2013 885
2014 909
2015 927
2016 928
In terms of Average return per unit of the company, the growth is registered there too. This
can be seen as produced in the table below (skynz.akamaized.net, 2016) –

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Year Average return per unit ($)
2012 71.93
2013 75.83
2014 77.52
2015 79.54
2016 81.67
Hence, it can be seen that company is making huge progress in terms of return as well.
Why merger
In the recent past few months, the company has been under pressure due to intense
competition after the arrival of Netflix. The shares of the company have also fallen to an
extent of 28 %. Even though the revenue of the company has been rising but the pressure on
its traditional business was mounting which has started to erode the traditional business of the
company. The market reports have suggested that the number of subscribers of the company
have begun to reduce which is a worrying sign for the company’s future. In the first half of
the year, the company had been questioned by the investors several times regarding the
strategy of the company to deal in the changed market scenario (Morrison, 2016). The
company on the other hand had been looking for better capital management strategies and the
investors to boost up the business of the company. The company also appointed Citigroup
recently to take advice on the capital management strategies and how to steer the company
out of the ongoing crisis.
Merger with Vodafone NZ
The company over the past few months has been looking to make a deal with the Vodafone
of Britain to provide the premium entertainment content to the subscribers in New Zealand.

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The company will be able to provide wide network of television content as reasonable prices.
The merger is assessed to complement both the Vodafone and the sky television network
alike. The company has recently struck deal with Vodafone NZ for a total of $2.4 billion.
Rationale of the merger deal is studied under the following aspects –
A. For Sky Television Network
a. Market expansion – with a huge investment coming up from this deal and services
shared, the sky television network will be able to come out of the traditional services
offering to its customers of services on cable only. The company will be able to
provide the services on mobiles and laptops with the help of Vodafone. This way, the
already leading company in the field of cable services will be able to expand its
market base and reach out to more customers.
b. Competition with the competitors – the company will be able to compete with the
newly formed competitors like Netflix and Apple Inc. The introduction of Netflix and
Apple Inc. television subscription facilities has led to a tough competition in the
recent market scenario.
c. From One trick company to Three Trick Company – the company currently offers
services in the field of cable television only. Now, after the merger, the company will
be able to secure services in the areas of mobile, television and broadband. This will
enable the company to reach to a wider customer and hence, again start its growth.
B. For Vodafone
a. New services to subscribers – as has been understood from the various market
reports, the subscribers increasingly want to obtain services from one services
provider and the merger with sky will help Vodafone in providing services of
television like entertainment and sports to its subscribers directly.
C. Combined benefits to both the companies (Vodafone, 2016)

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a. Creation of a market leader in the country – the companies in their respective areas
is the market leaders in the country. After the merger, both the companies with their
combined capabilities will be able to reach the pinnacle in the area of cable television
and online television subscription.
b. New digital products innovation - the technological abilities of both the
companies’ combined will be able to produce new digital platforms for the
entertainment industry. The combined technology will be able to provide tailored
services to the individuals living in the country as well as the households alike.
c. Attractive packages to the customers –the combined synergy created with the
merger will enable the marketing teams to come up with attractive packages to the
consumers which the teams were earlier not able to provide due to budget or
technology constraints.
d. Greater benefit derived from high speed broadband system – the companies will
after the merger be able to utilise the benefits of high speed broadband infrastructure
and with the use of greater speed will be able to provide better services of television
to the consumers. This move shall enable the sky television network to shift from
content distribution to alternate distribution channels for example – mobile and
broadband.
e. Vodafone group global support – the global know how and the experience of
Vodafone will come handy when it comes to handling clients and providing smooth
error free transmission via the Vodafone network.
f. Synergy creation – the combined synergy to be created with this merger is expected
to be somewhere around NZ $ 435 million. This synergy can be invested in the areas
of improvement in the technology or customer experience as both the companies may
mutually decide.

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Merger scheme statistics and Leadership
The merger deal statistics worked out between sky television network and Vodafone NZ is as
follows
 The Vodafone Europe is to have 51% stake in the entity with the sky network
providing almost NZ $ 1.825 billion in cash and issue new shares to Vodafone Europe
to fund the deal.
 The sky network is to borrow the money to pay to creditors from Vodafone only and
later pay the debt it owns to the Vodafone Europe.
 The company sky network is to borrow NZ $ 1.80 billion from the Vodafone for its
working capital needs which includes NZ $ 1.25 billion to be paid to Vodafone
Europe.
 The deal is to be approved by the 75 % of the shareholders vote who are present and
voting in the meeting.
 There is to be share swap by the companies which has been worked out by both the
companies.
 The sky television network is to issue NZ $ 5.40 per share which is actually the
premium of the last traded price of the company’s share at the New Zealand’s stock
exchange. The last traded price of the company was NZ $ 4.47.
 Sky shall be entitled to pay near term dividend of FY 2016 for 15 cents per dollar.
The company shall be entitled to pay 2.5 cents per dollar for the each calendar month
beginning from October 2016 to the end of the deal.
 After the deal is worked out, the company shall also pay a combined dividend of 15
cents a dollar for the period ending 31st March, 2017.

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 The sky board and the Vodafone board are expecting together to pay 85% to 100%
dividend to its shareholders of the free cash flow to the company at the end of the
calendar year.
 The leadership of the combined group shall remain in the hands of Peter who is also
the current chairman of the sky television network.
Conclusion
With this merger of Vodafone and sky television network, the combined entity will be one of
the largest digital television services providers in the entire country and will be able to chalk
the maximum benefits in the market. Not only the companies are to benefit from the deal
stated above, the stakeholders and the customers alike are to be benefitted from the deal. The
advantages of the deal in terms of market capability, digital growth, enhanced customer
experience, better services is mentioned above. The companies with their combined resources
will be able to create one television service provider giant under one common hood. The
merger deal is beneficial to the future of the sky television network which will be able to
regain its lost market share and be able to make new customers in the market as well.

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References
Sky.co., 2016. Our Story. [Online] Retrieved from https://www.sky.co.nz/aboutus [Access
Date 26th August, 2016]
skynz.akamaized.net, 2016. [Online] Retrieved from
https://skynz.akamaized.net//documents/24003/740328/2016_Annual_Results_Presen
tation.pdf/df4c1eaf-5d89-4c57-ae69-142f915c43a0 [Access Date 26th August, 2016]
Morrison, T., 2016. Sky TV Shares Sink 13pc As Customer Numbers Drop. [Online] retrieved
from http://www.nzherald.co.nz/business/news/article.cfm?
c_id=3&objectid=11634586 [Access Date 26th August, 2016].
Vodafone.com, 2016. SKY and Vodafone NZ Merger to Create a Leading Integrated
Telecommunications And Media Group in New Zealand. [Online] Retrieved from
http://www.vodafone.com/content/dam/vodafone/media/group_press_releases/
160608-vodafone-nz-sky.pdf [Access Date 26th August, 2016]