Home, SkyCable merge

Two of the country’s leading cable TV operators, SkyCable and Home Cable, announced yesterday a preliminary agreement to merge their respective cable operations and create a holding company with an enterprise value of P14.5 billion to manage both operations.

The move, according to both Sky and Home officials, is expected to improve the bottom lines of the two companies which have been in the red for sometime now. The new company will control at least 70 percent of total cable subscribers in the country (Sky has a 30 to 45- percent share of the market and Home, around half of this), although officials said this will not result in a monopoly of the industry since there will still be competition posed by Destiny Cable, Globe, and other small cable operators.

The merger is subject to due diligence to be conducted in the next 75 days by both parties and to other closing conditions, including the relevant regulatory approvals.

The memorandum of agreement was signed yesterday by Oscar M. Lopez and Eugenio Lopez III for the Lopez group which owns SkyCable, and Manuel V. Pangilinan, president and chief executive officer of the Philippine Long Distance Telephone Co. (PLDT) whose retirement funds own MediaQuest which controls Home Cable.

This is not the first time that the two multi-media moguls (PLDT is now finalizing the purchase of GMA 7 while the Lopez group owns ABS-CBN have collaborated. They are partners in Bayantrade which is into e-commerce. They are also into discussions over possible areas of cooperation for PLDT and Bayan Telecommunications, owned by the Lopezes.

According to SkyCable chairman Eugenio ‘Gabby’ Lopez, the telecommunications company is beset with the same problem, which is an ‘overbuild situation such that there is a force driving us into collaboration and cooperation.’

"We are in continuing discussions with PLDT on the matter. But who knows, one day, we might see a merger in the telecoms industry," Lopez said.

A new holding company to be eventually held on a 50-50 sharing scheme by Sky and Home, will be created. Initially, the two companies will have a share in the holding company proportionate to their assets and position in the industry (Home is about one half the size of Sky in terms of market share and assets). But once the foreign strategic partner comes in, Sky and Home are expected to move towards a 50-50 share of the new company.

Excess convertible notes of the new holding company given to Benpres Holdings Corp., the publicly listed flagship of the Lopez Group, in exchange for its additional shares in Sky will be offered to a strategic investors which is envisaged to provide added value to the merged operation.

A transition team, whose members will be drawn equally from both Sky and Home, has been formed to manage the merger process and ensure its orderly completion.

Pangilinan and Eugenio Lopez said in an interview that all operating decisions will be shared by Sky and Home as well as any additional funds that may be required by the new company. The two cable services however, will continue to be offered separately, but there will be rationalization of programming content as well as a streamlining of operations since there will now be one network with two products.

SkyCable and Home Cable started their exploratory talks on the possibility of a merger last year, following the global trend towards consolidation in the communications carrier business, including cable television.

Rising costs of investment in expanding network coverage and in enhancing technical capabilities have made the consolidation option necessary. The expenses related to programming of content have also increased in recent years, particularly in the light of the peso depreciation.

Officials of both companies said that the merger of SkyCable and Home Cable is expected to spur the development of cable TV in the country, rationalize infrastructure development, lower programming costs and provide richer content and a wider range of programming choices for viewers.

It is also expected to create a financially stronger entity, benefiting the consumer with a higher quality of service, and the introduction of the latest features that cable TV technology can now offer. The cable industry, officials said, needs critical new growth platform given its current level of unprofitability.

Lopez said Sky and Home are duplicating each other’s network, and are continuing to lay out cables in the same area to upgrade their systems, adding that a merger will definitely result in improved development of capital resources.

"One factor that led to the unprofitability of the cable industry is the foreign exchange rate. With this merger, the program suppliers are happy because they now have a change to get paid," Lopez pointed out.

Meanwhile, Pangilinan noted that the driving factors behind the merger of Sky and Home were the substantial capital resources required for expanding and upgrading both networks together with rising operating costs. "Indeed, the combination strengthens cable TV as an alternative converged platform for delivering data, voice and video to the home," Pangilinan said.

Among the services which the new company is expected to provide are the transmission of multi-channel video broadcast for basic and premium services, pay-per-view services, interactive video, voice and data services, video on demand, high-speed Internet access over cable, voice service over cable (cable telephony) and interactive television such as Internet on television, interactive gaming and e-commerce on television.

Central CATV and Pilipino Cable Corp. held for Benpres by Sky Vision Corp. offer cable TV services under the trade name SkyCable which is the country’s biggest cable TV operator. Central’s franchise areas cover Metro Manila while those of PCC cover key cities and municipalities in Cebu, Iloilo, Baguio, General Santos, Tagum, Naga, Cavite, Ilocos Region, Pangasinan and Bulacan.

Home Cable is the second largest cable TV operator in the country. It provide cable TV services in Metro Manila and the neighboring provinces in Luzon. The company is a wholly-owned subsidiary of Unilink Communications Corp. which, in turn, is wholly-owned by MediaQuest.