Clear gains for both SKY, Vodafone in merger - expert

Nick Dravitzki
Nick Dravitzki

News this week that SKY and Vodafone want to merge took many by surprise, but investment expert Nick Dravitzki says the reasoning behind it is quite simple.

SKY has the customer base Vodafone wants, and Vodafone has the technology SKY wants.

"[SKY will] get more of their base embedded with Vodafone, so more SKY customers have everything with Vodafone -- calling, broadband and the SKY product from Vodafone. That reduces churn," the Devon Funds portfolio manager told Paul Henry this morning.

"The future for SKY is having better technology. As a customer you get to use all the products in a much more seamless way."

Both businesses have struggled in recent years. Mr Dravitzki says it's hard to figure out Vodafone's finances, being the Kiwi arm of a larger international business, but it has forecast higher earnings in the next year -- perhaps banking on the SKY merger being a success.

SKY, whilst still making money, has been losing customers to cheaper alternatives like Netflix and Lightbox, and legally dubious offerings on the internet.

"Vodafone has been a challenged business, as has SKY over recent years. Their top line's been fairly static and their earnings have been going backwards," says Mr Dravitzki.

The deal still needs the approval of the Commerce Commission and shareholders. Mr Dravitzki doesn't expect the former to hold up the deal

"If the Commerce Commission can wave through Z buying Caltex, then I can't see it being a problem."

And if the recent 17 jump in SKY shares is anything to go by, shareholders look likely to vote it through as well.