Sky Network Television Ltd (ASX: SKT) and Vodafone NZ today announced they will merge to create New Zealand’s leading entertainment company.

In a statement to ASX, Sky Network (SKY) said it will acquire all shares in Vodafone NZ for a total purchase price of NZ$3,437 million through the issue of shares to Vodafone Europe B.V. and cash.

Vodafone will receive a 51% ownership stake in the business, and another NZ$1.25 billion in cash, to be funded through new debt. Shares will be issued at NZ$5.40 per share.

“The Combined Group will have the ability to offer New Zealand’s best entertainment content across all platforms and devices in a rapidly evolving media and telecommunications market,” SKY’s media release stated. “The Combined Group will provide an enhanced customer experience and greater choice of products and services, as well as attractive offers of entertainment content, broadband and mobile to meet the growing consumer demand for packaged services.”

In net present value terms, the deal is expected to deliver cost, capital expenditure and revenue synergies of NZ$850 million, or NZ$1.07 per share. It said the synergies provide additional benefits over time and put the company in a stronger position to pay increased dividends.  

The company quoted independent Advisor and Appraiser, Grant Samuel, as saying shareholders will be “better off” under the deal and the price and terms of the share issue are fair.

“This is a significant and positive step in SKY’s evolution as a premium entertainment company,” SKY CEO, John Fellet, said. “We already enjoy an excellent partnership with Vodafone, bringing together our two highly complementary businesses is in the best interests of shareholders and customers.”

Vodafone NZ Chief Executive, Russell Stanners, said the merger brings together the best parts of both businesses.

“This is an exciting time for the rapidly evolving communications and entertainment industries,” Mr Stanners said. “The merger brings together SKY’s leading sports and entertainment content with our extensive mobile and fixed networks, enabling customers to enjoy their favourite shows or follow their team wherever they are.”

The transaction price represents an enterprise value to 2017 expected operating profit multiple (EV/EBITDA) of 12.5x.

Once complete, SKY will be one of the New Zealand Stock Exchange’s largest companies, with forecast pro forma revenue of NZ$2,914 million.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned in this article. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.