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Regulator clears Foxtel-Austar merger

by Paul Whitfield | Published April 10, 2012 at 9:56 AM

Australia's largest pay television providers have been cleared to merge after the competition regulator approved Foxtel Management Pty. Ltd.'s A$2.6 billion ($2.68 billion) acquisition of its smaller rival Austar United Communications Ltd., which is 54% owned by John Malone's Liberty Global Inc.

The Australian Competition and Consumer Commission, or ACCC, said it will not oppose the deal after accepting a raft of undertakings offered by Foxtel. These include an agreement to refrain from tying key content providers into exclusive deals and a commitment to provide rivals with access to channels and customers. "By reducing content exclusivity, the undertakings will lower barriers to entry and promote new and effective competition in metropolitan and regional telecommunications and subscription television markets," ACCC chairman Rod Sims said in a statement. "Taking into account the undertaking which has been offered by FOXTEL, the ACCC is satisfied that the proposed acquisition is unlikely to substantially lessen competition."

Foxtel, which dominates Australia's metropolitan pay-TV market, in July agreed to pay A$1.9 billion and take on about A$650 million of assumed debt to gain control of Austar, the only significant provider of pay TV to Australia's regional markets. The bid valued Austar's shares at A$1.52, a 54% premium to their prebid level.

At first the ACCC opposed the offer. The regulator worried that the combined group would use exclusive content deals to deprive online rivals of quality content and that Foxtel's 50% owner Telstra Corp. Ltd., Australia's No.1 phone company, would leverage a dominant position in pay television to drive customers away from other Internet and telephone providers.

Foxtel sought to remedy those fears by agreeing to forgo exclusive rights to movies for video-on-demand services and share Internet protocol television, or IPTV, rights to 62 channels including the Disney Channel, Sky News and sports network ESPN.

Austar shareholders, including its controlling shareholder Liberty Global, voted 92% in favor of the deal at a meeting at the end of March. Liberty Global will book a gross return of about $1.1 billion from the sale. The deal is expected to conclude before the end of May.

Foxtel is 50% owned by Telstra and 25% by billionaire James Packer's Consolidated Media Holdings Ltd. and Rupert Murdoch's News Corp. News Corp. said it would contribute as much as A$225 million to Foxtel to help pay for the Austar acquisition.

Shares in Austar closed Tuesday at A$1.52, up A$0.04 or 2.7% on their previous close.

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Regulator clears Foxtel-Austar merger

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