Sky Network Television’s board has tasked you with preparing a board paper offering strategic suggestions on how the firm might create value.
Sky TV is a pay-tv service providing a range of content offerings to New Zealand subscribers via its set-top box system.
In recent years, Sky has seen a marked decline in its subscriber base due to streaming video on demand (SVOD) services entering the market such as Netflix and Lightbox, in addition to greater competition for key content, which recently resulted in Sky losing the rights to broadcast the Rugby World Cup in 2019.
The CEO has announced his resignation and the board feels that now is an appropriate time for a total review. The board has first asked you to provide a critical analysis of the firms current situation including strategic strengths and weaknesses, and an overview of current broker sentiment regarding Sky.
For the data part, you should collect 5 years data from the SKY annual report 2013-2017.
• The company percentage of debt in its capital structure for the past five years (calculated as total debt divided by total assets)
• The companies interest coverage ratio for the past five years (calculated as EBIT divided by interest expenses)
• The company dividend payout ratio for the past 5 years (dividends/net profit).
• Information on any other capital returns to shareholders including (but not limited to) special dividends and share buyback offers. CHECK THE ANNAUL REPORT!!!!!!
• Consider the company current dividend yield (dividend per share/price per share)
• Calculate the firms return on equity (net income/average shareholders equity)
• Calculate the price earnings ratio
The board then requests that you undertake a review focusing on the current state of the company in the following areas:
• The appropriateness of the capital structure
• The firms pay-out policy, especially in light of increased competition
• Corporate governance framework
Finally, the board is asking you to consider and put forward one strategic option for the firm. This could include a merger or acquisition, a major change in direction necessitating significant capital expenditure, or any other option you see for dealing with the issues facing Sky.
You should explain the idea fully, outlining the reasons you are suggesting this option, any foreseeable problems that may need to be overcome and the risks associated with your plan. (i.e. is it expensive requiring significant new capital, is it moving into an area where the firm doesn’t have expertise etc).
Remember that the board (i.e. me) is busy and so your report should be clear, concise and to the point.
You should prepare outlining what you see as the major strength and weaknesses of Sky currently is, explain your proposal and articulate why this option will address Sky’s weaknesses. Finally, you should explain any risks involved