The Perth date Aug 21 is interesting
Prob play that in nz now …if the series goes ahead
The good old economic value trick to ‘justify’ making changes to the rules.
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For sure - definitely won't work to go to Perth and back. Seems highly likely play 2 here in NZ, and do a third in OZ at end of season (hopefully after bubble back open).
good news is that all the wallabies have been in a bubble in Queensland, so likely will all be able to travel over this week without MIQ.
https://www.stuff.co.nz/sport/rugby/...-travel-bubble
Thinking more about the property sale. Highly unlikely that Sky have not been presented with an offer from a developer or someone else that is compelling enough to accept. They don't need the space, and the land alone will have a certain amount of value that The Market will pay.
When, after all this time, the contact at Colliers said "no decision has been made yet" - that does seem to me that the sale has been put on pause while Jarden work with the various 'interested parties' to see if a Sky deal can be done. Otherwise, if no deal was going to be made for the property anymore I think they would have to tell us - and Colliers wouldn't be still waiting in the wings for a decision to be made.
From here, we know a few things to be true...
- Sky cannot continue in its current form. Well, technically the business can continue as a going concern and stay FCF positive for the foreseeable future, however the problem for shareholders is that the market does not rate business that simply rent content for distribution anymore. Despite Sky's continued strong underlying financial performance, the market prices the business each year as though it will be out of business in 5 years time. Even when Sky win key content deals like Discovery, Viacom, NBCUniversal, rugby, NRL, netball, cricket etc...the market shrugs and says "yeah ok, but what about in 5 years time? You probably won't be able to renew...or if you do the cost will be exorbitant..." And therefore an excessively low EBITDA multiple is given for the business. It isn't fair, and has certainly caused me a lot of consternation over the years - but it is what it is. If Sky continues as they are, no doubt they will eventually do buybacks and divvys...this will return some value to shareholders, but even though these moves will probably give somewhat of a 'bump' to quoted value, it will always be muted by the overall pessimism of how the market views Sky's current business model.
- In a connected, digitised world you must either earn off the IP or the connectivity. Shareholders like Ogg prefer the IP route (takeover by someone like Comcast, Discovery Viacom). Shareholders like me see more value in earning from connectivity (merging with Vocus, or even perhaps 2Degrees). Neither approach is right or wrong I don't think - both would increase value for Sky shareholders, it's just a matter of how much value.
I think Discovery is interested in some kind of a deal, but not Comcast or any of the other big content producers (though I stand to be corrected). It makes sense for Discovery because they just bought TV3 and are in this market...I don't really see the benefit to Comcast etc since they have no existing presence and NZ is a small market. If Discovery are in talks with Sky and Jarden, I would be surprised if it was for a takeover. I could see them doing some kind of a partnership or JV, but not sure that they need to spend half a billion dollars to acquire Sky wholly to achieve their objectives. Let's see.
A much better outcome long-term imo is for Sky to fully embrace telco. 2 Degrees may or may not be in the mix, but I would think Vocus should be the preferred option. We already get internet through them so the relationship is warm. And, depending on how a deal is constructed, I think Sky shareholders could end up doing very well.
Let's say Sky was valued at $500M (70% premium but still less than 3xEBITDA. Fair to current shareholders given the sustained low SP but also represents a reasonable valuation for Vocus). And let's just say Vocus are valued at $700M (the higher end of the valuations we have seen in the media).
If the deal was based on a shares-only settlement (no cash component) then you end up with a new entity that has ~4.36B shares outstanding listed on the NZX and ASX. Existing Sky shareholders own ~40% of the new business, and Vocus NZ owners hold the remaining ~60%.
In theory, the new business should be 'worth' $1.2B ($500M Sky + $700M Vocus NZ). However, the new entity will produce EBITDA of $200M+ next year (just on current earnings, not taking into account synergies, cost savings and future growth).
The market is highly likely going to see this move as a positive, with large growth prospects for the new Sky-Vocus entity in broadband and mobile given the superior bundles that can be offered.
Even if to start with, the market initially put a valuation based on 7xEBITDA, that would be a market cap of $1.4B. That equates to a $120M extra gain to Vocus NZ owners right away. It would also be a SP of 32.5c/share - which would be a tremendous outcome for long suffering Sky shareholders.
I actually think Mr Market could be much more enthusiastic than that. If he was, and a 9-10xEBITDA was achieved (based on material growth assumptions) then Sky would be valued at as much as $2B in the near term (with the potential to go much higher over time as earnings increase significantly from broadband and mobile).
A $2B valuation would be an extra gain of $480M to the Vocus NZ owners. It would also be a SP of 46c/share which is damn near 3 times where the SP is atm).
If the SP initially settled anywhere between, say, $1.5B - $2B it would be a fantastic outcome for all parties involved. I think this is based on reasonable assumptions.
No doubt there are risks, and it is also uncertain how the incumbents would respond to a Sky-Vocus threat...it certainly won't all be sunshine and lollipops for the new entity. However I still maintain that this is most likely the best avenue for Sky shareholders and Vocus moving forward.
Whether I am right or wrong about the end state for Sky, one thing I know for sure is we cannot remain as just a content rental business. The market places very little value on these businesses now (something I have had to learn the hard way) and Sky needs to embrace a new business model with both hands now (be that the IP or connectivity route).
Despair
.. insert suitable GIF
Well, even the banks across the ditch are getting into broadband.
https://www.nzherald.co.nz/business/...U7Q2C23D2VWJY/
If the banks of all things see value in broadband (and are actually buying large stakes in the businesses) I think Sky should definitely go beyond a wholesale broadband deal and become a fully fledged telco.
With a little luck, this is the recommendation from Jarden.
I think the reason for the massive slump in Sky value is simply due to the fact they are no longer a monopoly.
In the past there was never any serious threat of sky not getting the NZR rights (the big kahuna), and also that there was no other pay tv operator in NZ to bid for the rest of the premium content in the market (because no one has scale and it was too expensive to build out without an existing user base. Now there is a viable cheap alternative to proprietary infrastructure (OTT streaming), and sky is no longer a monopoly, and is competing with companies with vastly more financial resources and scale
Even when sky is successful in being able to retain content rights (when content providers choose to not provide them directly themselves that is), it has to spend a lot more than previously to do so (just look at the last NZR renewal). The odds of Sky retaining the NZR rights at the next renewal I think is fair to say are less than 50%, and once again the price expectations will be for significantly higher costs.
Also, Vocus doesn't have a mobile network - they just resell the spark mobile network access. They don't have the billons in cash needed to build one from scratch and obtain rights to use any of the needed frequencies. I don't see what value Sky would be to Vocus shareholders - If Vocus want to get into owning content, it would be much cheaper and more profitable to simply bid for NZR rights at the next renewal. But it makes much more sense for Vocus to look to merge with 2 degrees than Sky IMO.
Sky success will never be explosive, they are like the video rental shop in the old days. They are tired, and need to get into the 23 century. They are just moving into a market, that has beat them to it and seems to be getting crowded already. Having said that, they can still be a viable company, even though it may be slow and steady. They need a model that will see them into the years ahead. Why would you sign up to Sky fibre, when there are already plenty of successful operators out there. I don't know, but then again I am not getting paid the big bucks that the staff are. I say earn your money, and do something fabulous, instead of just turn up at work.
I think the better option is for sky to split into two:
Company A: Sky Infra - Owns the satellite customer base and assets, resells content supplied by company B (sky digital), just like Vodafone & spark resell sky content. Also includes new broadband effort, can also approach other content providers about reselling their content on its platform.
Company B: Sky Digital - Owns the premium content rights sky has (both sport and "non-sport"), produces content and also owns the Streaming infrastructure & customers using Sky Sport Now, Rugbypass and NEON.
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Company A is a cash cow that can pay large dividends for years, but with no growth ahead of it, and isn't attractive to anyone as a takeover target. Company B has the assets any potential buyer wants and is a much cleaner potential sale.
I believe this would provide the best result for shareholders - a cash cow probably valued more than half of the current market cap easily, and an easy sale of the valuable assets for probably close to current market cap. The issue is that no management team want to be left in charge of a no growth cash cow and see there most valuable assets (content rights) and growth products (streaming) get sold off.
I agree with you...
Pie in the SKY. Just playing silly buggers with how many entities form SNT does not alter the fact that the existing business (content rental and distribution) is not valued highly by the market.
Telcos, on the other hand, are valued very highly (even though broadband is considered low margin).
Sky clearly see that offering telco services is the way forward (hence Sky Broadband). I am simply proposing that they become much more aggressive than that.
A content aggregator / reseller getting into the telco space makes sense. I touched on this about a year ago, but one of the largest costs in a streaming business is connectivity / bandwidth / delivery (i.e. CDN costs) being the cost of getting the content from your studio to the end consumer. Making money from streaming is hard. If the CDN cost can be eliminated by Sky partnering with a telco who has cables in the ground and connections to other ISPs, then that definitely helps the business model / business case.