Australian consumers in regional areas will soon be able to enjoy access to new digital subscription channels, as long as regulators approve a new proposal to merge FOXTEL, Australia's largest pay-TV operator, with Austar United Communications Ltd. (AUN)

FOXTEL has reached a conditional non-binding proposal to buy AUSTAR, which has 764,000 pay-tv subscribers, with most of them in regional areas, for A$1.9 billion ($2 billion) in cash plus debt to expand in the nation's rural areas.

FOXTEL said in a news release that the proposal, if implemented, would bring together two of Australia's major subscription TV service providers, creating one of Australia's largest media businesses with over 2,500 full-time equivalent employees and anticipated revenues of over $2.8 billion with a combined investment in original Australian content of more than $500 million per annum.
"This is a logical transaction with significant consumer and industrial upside for all stakeholders. The two companies are a complementary fit," said FOXTEL CEO Mr. Kim Williams AM. "If the merger were to go ahead, it is a win-win transaction that delivers value to AUSTAR shareholders, synergies and growth opportunities for FOXTEL and increased services and choice for all consumers."
The deal would help FOXTEL, which focuses on metropolitan areas, increase its audience by 46% to 2.4 million. Australia has a population of 22.6 million.
The deal is subject to a number of conditions, including, the board of AUSTAR recommending the transaction to its shareholders, the completion of due diligence by FOXTEL, and regulatory approvals, including from FIRB and the ACCC, and minority shareholder and court approval.
AUSTAR held its annual general meeting of shareholders today. The proposal by FOXTEL wasn't among the resolutions voted upon by shareholders.
The A$1.52-a-share bid by FOXTEL is "appropriate", AUSTAR said in a note to shareholders. The filing though said that AUSTAR's board will appoint an independent expert to determine if a definitive transaction with FOXTEL is fair and reasonable.
Tim Downing, executive chairman, said the transaction would be completed through an AUSTAR scheme of arrangement.
"Our board believes that the price of A$1.52 per share is appropriate in the context of a change of control transaction. We will look forward to working with FOXTEL over the coming weeks with the intention of entering into a definitive transaction as soon as possible."
Foxtel is 50% owned by Telstra Corp., Australia's largest phone carrier, with 25% stakes held by News Corp. (NWSA) and Consolidated Media Holdings Ltd. (CMJ) Austar is controlled by Liberty Global Inc. (LBTYA), which controls 54%.
FOXTEL is being advised by AquAsia, UBS AG and Allens. AUSTAR hired Goldman Sachs & Partners Australia Pty. Telstra is advised by Credit Suisse Group.
Significant benefits for consumers
FOXTEL believes a merger of FOXTEL and AUSTAR would bring significant benefits to consumers, in particular:
* a merged FOXTEL/AUSTAR will be able to roll out new digital products and services even faster to existing and new customers; * Australian consumers in regional areas will be able to enjoy access to new digital subscription channels as well as new flexible packages and pricing through products such as FOXTEL on Xbox 360 and FOXTEL on T-Box(R) consumers in regional Australia will also get access to the same quality digital services at the same time as their metropolitan counter parts; and * the continuation of the long history over the last fifteen years of FOXTEL investing in and being one of Australia's great innovators in media delivery.
FOXTEL said it intends to maintain the world class AUSTAR facility in Robina, Gold Coast, which would be an important part of the combined group.