The deal is still subject to the conclusion of the agreement and regulatory review, but when completed News will own 65% of the shareholding in the new entity and Telstra, which will dilute its shareholding in Foxtel, will have 35% of the shares.
Under the agreement, News gets to appoint the chairman of the new company as well as the board and senior executives, and Telstra will appoint the remaining directors.
Telstra chief executive Andy Penn says the binding process agreement with News Corp, when completed, would create Australia’s “most dynamic and innovative provider of premium sports and entertainment”.
“And that’s obviously also being delivered over Telstra’s network,” Penn said, adding that Telstra’s investment in Foxtel is very important and the company is committed to the investment.
He said Telstra looked towards ultimately moving the new entity to a position where it could be floated and separately listed through an IPO.
News Corp chief executive Robert Thomson is reported as saying the proposed restructuring of Foxtel and Fox Sports will unlock value for News Corp shareholders and provide a clearer vision into the depth and strength of the company’s assets.
“There is no doubt that the world of content is becoming more complicated and competitive, and it is important that Australia has a strong local platform for its great sports and for homegrown creativity, as well as a showcase for international programmes," he said.
Penn said, importantly, Telstra would continue with its arrangements where the telco was the key distributor of Foxtel products and services and also “where we continue to provide Foxtel with telecommunication services as well, and these are an important strategic element of the transaction for us”.
“In fact, you can see in many of our offerings today, we have great media products, such as our AFL and our NRL apps, as I mentioned yesterday. We’ve got now more than 1.4 million users of those apps.
“Telstra TV, again another demonstration of how we’re integrating media into our premium services for our customers, and so this is a really important and exciting announcement that we made last night in conjunction with News because whilst media continues to grow, the impact of digital, the digital world in which we’re living in and the amount of media that’s coming over IP means that Foxtel needs to adapt its business model to be able to deliver its content through an IP world as well as through a broadcast world.”
Telecoms analyst and industry commentator Paul Budde said the announcement of the proposed merger, combined with Telstra’s agreement to dilute its shareholding in the pay TV operator, “paves the way for the end of the Foxtel war between News Corp Australia (formerly News Limited) and Telstra”.
“The decline in revenue and subscriber numbers would most certainly have provided News Corp with the ammunition it needed to break the stranglehold that Telstra has held over Foxtel for more than 20 years," he said.
“When the service was launched in 1995 Telstra secured a 50% shareholding, aimed purely at defending its telecommunications business against Rupert Murdoch’s News Limited. Telstra was very much afraid that News Limited would use the pay TV operation to get a foothold in the telecoms market and, as such, become a fierce competitor to the incumbent telecoms company. The telco never had the intention of making Foxtel a success story.
“So the battle is over. Telstra has been able to keep News Corp successfully out of its market. This purely defensive strategy has worked and, beyond its sport segment, Foxtel has been mortally wounded.”