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Here’s why Sky Network Television Ltd shares soared 20% today

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.

Source: Google Finance

Source: Google Finance

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.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned in this article. 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.

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