By Byron Kaye and Rebecca Howard
SYDNEY/WELLINGTON (Reuters) - Vodafone PLC <VOD.L> said it was merging its New Zealand unit with the country's biggest pay-TV firm, Sky Network Television <SKT.NZ>, in a $2.4 billion deal that will enable it to offer customers packages of entertainment, broadband and mobile.
The biggest deal in New Zealand this year will give Sky Network the chance to expand beyond its traditional satellite broadcast market, which has been shaken up by the arrival of Netflix and Apple Inc's <AAPL.O> online content service. Sky's shares jumped nearly 20 percent.
Vodafone said the tie-up would enable it to offer Sky's sports and entertainment programming to its mobile and fixed-line subscribers who increasingly wanted to access more content and communications from a single provider.
Under the terms of the deal announced on Thursday, Sky will buy the mobile phone provider for NZ$3.4 billion ($2.4 billion) in total, including NZ$1.3 billion in cash, to be funded through new debt, and the rest in new Sky shares. Vodafone will, however, own 51 percent of the combined entity after the deal, which is subject to regulatory clearance, the firms said.
Mobile operators and cable and satellite pay-TV groups in Europe, the United States and elsewhere are scrambling to tie-up so they can offer "quad play" packages of mobile, fixed-line, broadband and TV service.
"The acquisition, if successful, will secure Sky's future as a company, transforming it from a one-trick (pay television) entity to a three-trick (mobile, broadband, pay television) integrated force in the New Zealand market," analysts at Morning Star said in a note.
"On face value there are both strategic and financial merits in the near term."
Analysts had suggested Vodafone should cut its exposure to the mature markets of Australia and New Zealand and instead focus on higher-growth Asia. Last month, Vodafone said developing markets were responsible for its first year of sales growth since 2008.
Vodafone NZ has more than 2.35 million mobile connections and more than 500,000 fixed-line connections in New Zealand. It said its revenue for the 12 months to end-June was forecast to be NZ$2.0 billion.
Sky, which has no connection with the European pay-TV company of the same name, has over 830,000 subscribers. Its revenue for the same period is forecast to be NZ$927 million.
A spokesman for the NZ Commerce Commission said the country's competition clearance regime requires parties to submit an application for approval if they believe there are competition issues. "Until all the detail is established, no-one can assess what the competition issues will be," he said.
The approval process normally takes about 40 days, according to the authority's website.
Reflecting the pressure on its business, Sky's shares have fallen 28 percent in the last 12 months.
In New Zealand on Thursday, Sky shares closed up 17 percent at NZ$5.25, below the NZ$5.40 per share issue price of new stock for Vodafone.
If the deal succeeds, the new company will be one of New Zealand's biggest listed companies with annual revenue of about NZ$2.9 billion, the companies said.
The combined group would be able to generate synergies of about NZ$415 million after integration costs by rationalizing some overlapping functions and marketing services more effectively to a bigger customer base, the companies said.
Vodafone's shares were trading ex-dividend in London, down 4.3 percent at 6.18 a.m. ET.
Its New Zealand operation will still not be much more than about 2 percent of its valuation of the global group after the deal, analysts said.
Shareholders are scheduled to vote on the deal at a meeting in July.
(Reporting by Byron Kaye in SYDNEY, Rebecca Howard in WELLINGTON; and Paul Sandle in LONDON Editing by Kenneth Maxwell and Elaine Hardcastle)