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Sky Deutschland has received a positive ruling from Germany’s tax authorities regarding its ability to preserve tax losses in the event of a change in shareholder structure of the group. The news might further open the door for Rupert Murdoch’s News Corp to increase its 49.9 per cent holding in Sky Deutschland, and perhaps lead to a full take-over. News Corp is sitting on a $12 billion cash war chest.
Sarah Simon, senior analyst at investment bankers Berenberg Bank summed up: “This should be taken positively by the market, given that it will likely be interpreted as removing a barrier to News Corp increasing its stake in the company (from 49.9 per cent currently), and possibly mounting a full bid.”
She continued: “The amount of tax loss preservation will depend on the market value of the company at the time of the triggering transaction (i.e. the price paid for the shares in question) at such time as it occurs. The German tax authority’s approval is essentially confirmation of the methodology of calculating the losses that can be preserved, rather than giving an absolute figure. We understand that the formula is broadly the difference between the book equity of the company and the market value at the time of the triggering transaction. This means that the higher the price paid, in theory the higher the rate of preservation of tax losses. As of September 30th, Sky Deutschland had around €2.3 billion in tax losses, of which €2.1 billion was in Germany.”
“We note that News Corp has been active in pay-TV deal-making in recent months, having agreed to take a 49 per cent stake in the YES network (regional sports network) only yesterday, acquired the minority interest in ESPN Star Sport in Asia, and having increased its stake in Foxtel, the Australian pay-TV operator. This follows the (failed) attempt to take full control of BSkyB in 2011 – a deal that was scuppered by political fallout from the UK newspaper hacking scandal. An increase of News Corp’s stake in Sky Deutschland would be consistent with this strategy, in our view.”