Galaxy TV & Foxtel agree on merger

SYDNEY — The long overdue shakeout among Oz’s five loss-making feevee carriers finally happened Friday, when an agreement to merge Rupert Murdoch’s Foxtel cabler and embattled satcaster Australis Media’s Galaxy TV was reached.

The pact provides for the cash-strapped satcaster to gain access to additional funding of A$300 million ($222 million) in exchange for Foxtel partners News Corp. and public telco Telstra emerging with 66.5% of Australis stock and existing Australis shareholders retaining 33.5% of the merged entity. The new company will trade as Foxtel after completion of the transaction in November.

The combined company will have 320,000 subscribers (110,000 from Australis and 210,000 from Foxtel) and a 10-member board comprising four directors from Australis and six News Corp.-Telstra execs.

On the way

The merger had been expected since late June, when Murdoch and rival titan Kerry Packer (who had previously been aligned with Foxtel’s cable foe Optus Vision) pacted to work together.

Packer had held first right of refusal over Galaxy’s key programming deals with the U.S. majors, through which Galaxy was contracted to provide movies and entertainment to Foxtel for 25 years at a punishing cost to Foxtel of $3.5 billion.

While Foxtel is taking on Galaxy’s $630 million in debt, the merger cancels Foxtel’s movie liability. It gives Foxtel a backdoor listing on the Australian Stock Exchange as well as access to most of Oz’s 6 million TV homes across cable, satellite and microwave.

Packer had a 14.4% stake in Australis before the merger, and is expected to emerge with 4.8% of the merged company with an option to equalize his interest with News Corp. at a later date.

Strangling structure

“All of the participants in the Australian subscription TV market have acknowledged that the prevailing structure is not viable over the long term,” News Australia exec chairman Lachlan Murdoch said. “With this change, an emerging industry begins to free itself from a structure that has restrained growth to the detriment of the businesses involved and their customers.”

The merger requires the approval of shareholders, bondholders, Galaxy’s U.S. backer Lenfest, the Foreign Investment Review Board and the Australian Competition and Consumer Commission. This last entity blocked a similar proposed merger on anti-competitive grounds in February 1996, from which time Australis has struggled. While nothing is certain, the ACCC is widely regarded as being more receptive this time around.But Optus does not welcome the Packer-News Corp.-Galaxy teaming, since Packer and Murdoch on the same side make a formidable force Down Under.

“Optus is concerned that the Foxtel-Galaxy merger may be used for anti-competitive purposes (and) does not consider that market conditions have changed sufficiently since the ACCC blocked the merger last time,” said Optus head Peter Howell-Davies.

Other aspects of the deal include:

n Telstra providing the merged entity with loans of $58.5 million between November and July.

n Foxtel furnishing Australis with a further $12 million in programming fees.

n News Corp. and Telstra guaranteeing $74 million to support a new debt facility for Australis and contributing a maximum of $18.5 million each.

n Telstra stopping its Foxtel cable rollout at 2.5 million homes, instead of 4.5 million, in return for $222 million compensation to News Corp.

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