I pray to God Sky are not buying anything, let alone a piece of CommercialCo. I can't see how we would ultimately benefit from that. Sky TV benefit from our relationship with NZR so long as we are able to continue renewing the rugby rights at a 'reasonable' price (i.e. a price that we can still earn a living from). If we owned a slice of CommercialCo we would be in a bizarre situation whereby on one hand we want to pay as little as possible to renew NZR, but on the other hand we want NZR to go out to market and get the highest possible bid to maximise CommerciaCo revenue.
It doesn't make any sense.
And when we consider the RugbyPass fiasco, we really don't want Sky going out to buy anything. What are the odds that they would make a good purchase 'this time'?
Given the fact that the Investor Day was cancelled, I think it is much more likely that Sky TV is the target of some kind of a deal. If Sky were looking to buy something, I don't see why they would cancel your Investor Day at the last minute? You would still have it to front up to shareholders about strategy and just say that you are still actively assessing opportunities and will have more to say by the FY results, "in the meantime this is the new date for the STB roll out, it was delayed due to an international chip shortage (not our fault!), these are the other things we are doing to deliver on the strategy blah blah blah..."
But to just cancel it out of the blue
right at the last minute? It seems more likely to me that Sky are in discussions (brokered by Jarden I assume) to assess M&A possibilities. The conversations aren't at the stage that warrant an announcement to the market, but are warm enough to make The Board think there is a good chance that 'something' will come out of talks.
If Jarden are doing their job properly then there should be multiple interested parties looking at options with Sky. An outright takeover by PE is one option, or perhaps even an outfit like Comcast could want to become a 'cornerstone' type investor whereby they pay us $x to take a large equity stake in the business with the guarantee of preferrential content deals moving forward. Personally, I would think that an outright sale would be the easiest/cleanest.
As I was thinking this through, I started to remember our good friends at NZME. With the TVNZ-RNZ merger going ahead, Michael Boggs must surely be taking a harder look at Sky. And when you add to the mix the fact that Osmium own big chunks of shares in SKT and NZM, you would have to think that they would like to see something happen here. When I first considered this merger a while back I balked because of my initial perception that the quoted values for each company are 'out of whack'. And they are, but maybe not to as much of an extend as I initially thought.
In fact,
Michael B could probably put together a compelling argument that NZM shares are also undervalued too.
One way to get a 'fair deal' done would be to merge the two businesses based on current market valuations but allow Sky to pay some of their cash to existing SKT shareholders as a special dividend. That kind of deal would probably get over the line with SKT shareholders, and NZM may be willing to throw a bone to get the deal over the line if the alternative is that Sky is considering offers from PE.
So, then we look ahead at the merged SKT-NZM business:
- A very large multi-platform NZ media play across Pay TV, newspaper and radio
- Backed up with broadband and content deals with Google and Meta
- ~$1B in combined Revenue
- NPAT likely ~$70M
- FCF also likely around $70M
- A better, stronger business - if the market liked it better than the two separate entities, and gave a PE of 15 you are looking at a $1B business. At the time of doing the merger, the business would be valued at only $700M based on prevailing market values, so the potential upside for SKT and NZM shareholders is high.
- No cash borrowings required to 'fund' the deal. Straight merger based on SKT and NZM share price.
- At current valuations, Sky could issue 105M new SKT shares for NZM holders. $1B quoted value divided by 280M total SKT shares = $3.57/share with growth potential.
- No issues with regulatory approval given the TVNZ-RNZ merger
Let's say Sky could pay existing shareholders a special dividend of $50M (29cps) to current shareholders, then the new merged entity would hit the ground running with $100M cash and zero debt. Sky should be able to negotiate a higher special dividend quite frankly (especially given NZM is currently distributing its capital to shareholders via a buyback).
Anyway, all well and truly deep in the workd of speculation. Just reaffirming my position that I believe Sky are in talks (whereby Sky is most likely the target) and the NZME angle is a possibility.