Sky acquisition of MediaWorks could cost $200m, says 'perplexed' analyst

Tuesday, 7 June 2022

As subscriber numbers dropped, Sky TV pushed prices higher to try to recoup lost revenue.

Analyst MorningStar says it is “perplexed” by Sky TV’s proposed acquisition of MediaWorks, which it guessed could cost Sky $150 million to $200m.

Sky Television also received a cool response from investors after it announced to the NZX that it was in talks to acquire MediaWorks.

The company’s shares closed down 7.2% on Tuesday, with many shareholders quick to voice their doubts about a deal.

MediaWorks owns about half of the country’s commercial radio stations, including The Edge, George FM, The Rock, Today FM and Magic, and also has a large outdoor advertising business.

* Discovery paid $20m cash for TV3 and rest of MediaWorks' TV arm**

It no longer owns television channel Three after selling its loss-making TV business to United States company Discovery for $20 million in 2020.

MorningStar said it did not see Sky as a natural owner and operator of radio or outdoor advertising assets, and it was “highly debatable” whether investing in traditional, cyclical radio and outdoor advertising could accelerate Sky's growth.

MediaWorks is majority owned by United States private equity firm Oaktree, which has been assumed to be keen to exit the New Zealand media market completely after a loss-making foray into the TV market here prior to the Discovery transaction.

Political journalist Tova O'Brien joined MediaWorks' radio business last year (video first published in March, 2022).

The remaining, smaller MediaWorks business reported a loss of $2.9m for the year to the end of December and a loss of $4.8m the prior year.

Sky TV confirmed the talks after the Australian Financial Review reported speculation of a deal and Sky said the likelihood of a transaction proceeding was “still highly uncertain with discussions and due diligence ongoing and incomplete”.

Sky said it would not need to raise additional money from shareholders to fund the possible acquisition, but it would need to be approved by Sky shareholders.

Some Sky investors on share market forum Sharetrader reacted with indifference and others with hostility to the announcement.

“Are they looking at Video-Ezy too?,” one quipped.

But another observed “anything can be worthwhile at the right price”.

Sky said in February that it was looking at opportunities to invest capital to accelerate growth and generate new revenue streams, and said on Tuesday that it saw the possible acquisition of MediaWorks as consistent with that strategy.

It declined to provide further rationale for the possible acquisition on Tuesday.