Financial advisers Bear Sterns for Sky Cable and ING Barings for Home Cable have been tasked to talk with the creditor banks to renegotiate the term of payment of the debts of the two companies, some of which will fall due in September.
Bear Sterns and ING Barings are also doing a shortlist and talking to prospective local investors into the merged company. Since the law still defines cable as part of broadcast, the new company may not be able to allow foreign equity until a cable law that redefines cable as no longer included in broadcast is passed.
Sky Cable, which is owned by the Lopez group and accounts for the largest share of the cable television market, and Home Cable, owned by the PLDT group, have been in the red for some time now due to soaring costs of programming and network.
However, officials are confident that they can put back the cable business back on its feet in three years’ time.
Just recently, Sky and Home signed a definitive agreement to merge operations and create a holding company that will be equally owned by the Lopez and PLDT groups.
The holding company, Beyond Cable, Inc., is in the process of registering with the Securities and Exchange Commission. Under the agreement, the Lopez group will sell part of its shares to a third party strategic investor, and once the sale is completed, the three parties will have an equal share of 33 percent in the holding company.
Beyond Cable will have an enterprise value of P14.5 billion and will manage Sky and Home which corner around 70 percent of the cable business in the country.
Mediaquest president Antonio Samson said that the two cable TV outfits are now in the process of rationalizing programming in such a way that "Home will be the budget channel and Sky, the premium channel." Mediaquest, a wholly owned subsidiary of PLDT, controls Home Cable via Unilink Communications.
Programming accounts for around 50 percent of total cost, and officials are looking at reducing this to 22 to 30 percent of total. In absolute terms, Sky and Home are paying around P1 billion a year to foreign programmers. "In fact, some were not being paid at all, and with this merger, they may finally be paid," Sky Cable director Eugenio Lopez III said.
The unstable foreign exchange regime has practically doubled programming costs from 1997 to 2001, without a corresponding increase in subscription rates. Unlike the telephone business, cable operators do not enjoy foreign currency adjustment to protect them against exchange rate fluctuations.
Officials of both companies expect programming costs to increase 20 percent year-on-year unless the joint operation can successfully leverage its combined subscriber base for better contracts with programmers.
As part of the rationalization possess, some programs that used to be shown in Sky have been transferred to Home and vice-versa. ANZ, Lifestyle Channel, and Cinema One that used to be with Sky are now with Home while Home gave up Viva Movies.
In order to further reduce costs, Sky and Home are also rationalizing networking. "We are now in the process of doing the inventories to see where our systems and networks overlap," Samson said.