High Court rules in favour of delaying Sky TV-Vodafone NZ merger

The New Zealand High Court has ruled that there will be a short-term delay on any merger to occur between pay TV provider Sky TV and telecommunications carrier Vodafone NZ.

Under the court's decision, handed down by Justice Lang on Wednesday, Sky TV and Vodafone NZ are prohibited from completing their merger until midnight on the third day after the New Zealand Commerce Commission publishes its decision.

The merger is due to be decided by the regulator on Thursday.

New Zealand telecommunications providers Spark, 2degrees, and InternetNZ filed proceedings with the High Court earlier this week, saying a short delay would provide Vodafone NZ's rivals with "breathing space" wherein they can examine and question the Commerce Commission's decision.

"The proposed merger will be bad for consumers, resulting in poorer choice and higher prices for consumers, especially when it comes to sports content. That was at the heart of our decision to take this court action," said Spark GM of Regulatory Affairs John Wesley-Smith in response to the court's decision.

"The stay is important for natural justice and fairness, as it will ensure all interested parties have a chance to properly consider the commission's reasoning and make informed decisions on whether to seek a judicial review if there is a clearance decision.

"Without this stay, there was a risk that Sky and Vodafone would immediately take steps to implement the merger and make it a fait accompli, which would render any future legal review a meaningless exercise."

The High Court application was made following a rejection by Sky TV and Vodafone NZ of a voluntary pause period.

"Sky does not consider that there is any proper basis for seeking an interim stay, and Sky intends to oppose any such application and seek an undertaking as to damages," the subscription TV company had said prior to the court's decision.

A merger is not guaranteed; in October, the Commerce Commission sent a letter of unresolved issues to Sky TV and Vodafone NZ outlining several competition issues, saying it remained unconvinced that the merger would not substantially lessen competition in both the pay TV and telecommunications markets.

"On the basis of information gathered to date, the commission is not satisfied that the proposed merger will not have, or would not be likely to have, the effect of substantially lessening competition," the regulator said in October.

"We continue to have concerns that the proposed merger may give rise to competition issues in the provision of telecommunications services as a result of vertical and/or conglomerate effects."

This followed industry criticism in August, when rival telcos accused Vodafone NZ and Sky TV of trying to squeeze the competition out of the wholesale premium live sport and entertainment content market, the retail residential fixed-line broadband market, the retail mobile broadband market, and the pay TV market.

Vodafone Group and Sky Network Television reached an agreement to form an integrated telco and media group in June 2016, forecasting that it would make NZ$2.91 billion in revenue for FY17, and earnings before interest, tax, depreciation, and amortisation (EBITDA) of NZ$786 million.

If allowed by the regulator and approved by shareholders, the merger will occur via Sky acquiring all Vodafone NZ shares for a total purchase price of NZ$3.44 billion through the issue of new Sky shares, in return giving Vodafone Europe a 51 percent stake in the combined group, in addition to cash consideration of NZ$1.25 billion funded through new debt.

The combined group is predicted to have a net present value of around NZ$850 million, or NZ$1.07 per share.