Foxtel, Austar bid takes shape to clear last hurdle

FOXTEL and Austar have cleared their private barriers to a merger and there is now a "definitive" proposal from Australia's city-based pay TV company to take over its country cousin and form a media giant with revenues of more than $2.8 billion.

By InvestSMART · 12 Jul 2011

By InvestSMART ·
12 Jul 2011

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As previously signalled, the bid is for $1.52 an Austar share, which values the regional broadcaster at $2.5 billion. That is 33? above the price at which the shares closed yesterday but 54? higher than the price before reports surfaced that one of Australia's most drawn-out corporate marriages might finally happen - after which the price soared.

The proposal still requires approval from the Australian Competition and Consumer Commission, the Foreign Investment Review Board and the Internal Revenue Service in the US, given that Austar's major shareholder, Liberty Global, wants to buy out all the minority shareholders then sell the lot to Foxtel to save on tax.

The scheme of arrangement also needs the support of three-quarters of the Austar shareholders who cast a vote, plus court approval and the blessing of an independent expert.

However, an announcement made last night to the Australian Stock Exchange confirmed that Austar and Foxtel had resolved all the conditions outstanding between themselves, including due diligence, financing and board approvals.

Austar's independent directors have recommended minority shareholders back the scheme as in their best interests in the absence of a better offer.

The Austar chairman and Liberty Global chief executive, Mike Fries, said the bid represented "compelling value" for shareholders.

Foxtel's chief executive, Kim Williams, said the merger made "compelling strategic sense", while his company confirmed it would pay for the takeover with a combination of contributions from its three shareholders - Telstra, News Ltd and Consolidated Media - and debt from the four major banks.

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Frequently Asked Questions about this Article…

What exactly is Foxtel's takeover proposal for Austar?

Foxtel has made a definitive proposal to buy Austar for $1.52 per share, valuing the regional broadcaster at about $2.5 billion. The deal would combine Foxtel and Austar into a media group with combined revenues of more than $2.8 billion.

How much of a premium does the $1.52 offer represent for Austar shareholders?

The $1.52 offer is about 33% above Austar's share price at the close of trading the previous day and roughly 54% higher than the price before reports first emerged that a possible deal might happen.

What regulatory approvals and conditions must the Foxtel-Austar merger clear?

The proposal still needs approval from the Australian Competition and Consumer Commission (ACCC), the Foreign Investment Review Board (FIRB) and the US Internal Revenue Service (IRS). The scheme of arrangement also requires support from three-quarters of voting Austar shareholders, court approval and sign-off from an independent expert.

Why is the US Internal Revenue Service (IRS) involved in an Australian media takeover?

The IRS is involved because Austar's major shareholder, Liberty Global, intends to buy out minority shareholders and then sell the entire holding to Foxtel to achieve tax benefits. That planned buyout-and-sell step has US tax implications requiring IRS consideration.

Have Austar's board or independent directors recommended the deal to minority shareholders?

Yes. Austar’s independent directors have recommended that minority shareholders back the scheme, saying it is in their best interests in the absence of a better offer. Liberty Global’s chief executive, Mike Fries, also described the bid as representing "compelling value."

How will Foxtel fund the proposed takeover of Austar?

Foxtel said it would fund the takeover with contributions from its three shareholders — Telstra, News Ltd and Consolidated Media — together with debt provided by the four major banks.

What strategic reasons has Foxtel given for merging with Austar?

Foxtel’s chief executive, Kim Williams, said the merger makes "compelling strategic sense." The combination would unite Foxtel's city-based pay TV business with Austar's regional operations to create a larger national media group.

Have Foxtel and Austar settled the outstanding commercial conditions between them?

Yes. An ASX announcement confirmed Foxtel and Austar have resolved outstanding conditions between them, including due diligence, financing arrangements and board approvals.