What: Shares of Sky Network Television Ltd (ASX: SKT) soared as much as 21.7% today following the announcement it'll merge with Vodafone NZ as part of an NZ$3.4 billion deal.
So what: In early May, Sky Network shares slumped 15.6% during one day's trade after the pay-TV operator revealed it was leaking subscribers and the loss would have adverse implications for future profits.
However, Sky Network shareholders got a spring back in their step Wednesday morning when the company requested a trading halt as it undertook discussions "in relation to a potential significant transaction."
This morning, shareholders were delighted by the announcement that Vodafone NZ will merge with Sky Network to create a company which will deliver "New Zealand's best entertainment content across all platforms and devices."
Under the terms of the merger, Sky Network will issue shares to Vodafone NZ's parent company and pay NZ$1.25 billion in cash. Upon completion, Vodafone will hold 51% of the combined group.
Now what: According to both companies, a significant amount of synergies can be harnessed from the deal. However, bringing two companies together isn't always as easy or as lucrative as the investment banks' financial models make it appear. Therefore, shareholders would be wise to remain cautiously optimistic about the deal and closely track the forecasts which management has provided.
