Sky TV has confirmed it is in talks to buy MediaWorks.

The pay-TV provider says it is in "exclusive negotiations with MediaWorks shareholders regarding a potential acquisition of MediaWorks' radio and out of home advertising business".

Due diligence is still underway, and a deal is not certain, the company says. If a deal does go ahead, it would not require Sky to raise new equity, but it would require shareholder and regulatory approval.

Following the sale of its TV business to Discovery in 2020, MediaWorks operates in the radio and outdoor advertising markets.

In a May 20 NZX update, Sky said it was assessing investment opportunities.

MediaWorks' stable of radio stations includes The Edge, The Rock and More FM. It holds roughly half the market, with stations owned by Herald publisher NZME holding most of the balance.

MediaWorks CEO Cam Wallace said "no comment at this stage" when approached by the Herald this morning.

MediaWorks is currently owned 59.1 per cent by US private equity firm Oaktree Capital and 39.4 per cent by Sydney-based Quandrant Private Equity (which in 2019 bought QMS, whose NZ operation included a 40 per cent stake in MediaWorks after QMS and MediaWorks merged their outdoor advertising operations). The balance of shares (1.5 per cent) are held by Wallace.

As the Herald reported on Friday, Wallace has inked a potentially lucrative deal tied to his ability to find new owners for the radio and outdoor advertising business.

Accounts filed with the Companies Office show Wallace entered into a long-term incentive scheme in October 2021 entitling him to a share of any sale proceeds and the ability to buy shares of the company at a discounted rate.

The accounts record the value of these options - entitling Wallace to 1.5 per cent of any sale price excess above $175 million and the ability to buy 1.5 per cent of shares in the company for $300,000 - as presently being worth $2.2m.

The accounts to December 2021 show narrowed losses from $4.8m to $2.9m over the period, with advertising revenue up to $195m from $165m the year prior. Deteriorating conditions in the outdoor advertising market, largely blamed on Covid, saw the company book a $12m impairment on that side of its business.

Watchdog's approval required

Any deal would have to pass muster with the Commerce Commission.

The regulator earlier shot down Sky's attempt to merge with Vodafone NZ, and blocked a media deal that would have seen NZME merge with Stuff.

Sky shares surged last week on a separate report that the company had courted bids from two private equity firms. Sky said it would not comment on speculation and was fulfilling all of its disclosure operations.

The sale of MediaWorks' TV business two-and-a-half years ago was followed by rumours that the remaining firm would be listed on the NZX.

With the talks reportedly now underway, Quadrant is said to have engaged UBS to find a buyer for MediaWorks, while Sky is reportedly being advised by Jarden.

At its half-year report, Sky said it had $74m in cash, which has since been bolstered by $56m from the sale of its Mt Wellington campus.

Sky shares closed Friday at $2.64. The stock is up 54 per cent for the year on its return to customer gains, and its intention to reinstate its dividend.