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Murdoch: Back in the room

How often can a whole intricate takeover saga, ranging over months, be brought to mind by the phrase ‘the custard pie incident.’ The incident, of course, was patriarch Rupert taking one for the team when he made his mea culpa appearance before the Commons media committee in 2011 as he sought to limit the ever-spreading damage of the phone hacking scandal.

That scandal wrecked any chance for Murdoch’s then current bid to take over Sky. How times change, for a start the then Mrs Murdoch, Wendy Deng, who so ferociously defended her man, is now the former Mrs Murdoch – will Jerry Hall take on similar close protection duties?

As far as the bid went, there was never much doubt Murdoch was biding his time and that time has come: Brexit (of which he’s a big fan even though he doesn’t live in Europe and is not a European) has seen the pound fall 15 per cent and, as 21st Century Fox makes money in dollars, that’s a big discount for a sterling bid.

Also Sky’s share price has languished so that the 40 per cent bid premium only takes the price back to February’s level. Growth has slowed, the ad market looks anaemic and the price of content continues to rise as more outlets chase it. And the rise of that competition, notably Netflix but also Prime and BT, has weighed against the share price. But £10.75 is cheap at just over 11x EBITDA and many minority shareholders will believe the independent directors committee has failed to extract the right premium – expect heavy push back.

Nonetheless, Sky still enjoys a ‘very dominant position’ in UK pay-TV and Murdoch clearly thinks the pessimism is overdone; the business model of Netflix and others are far from proven despite massive success with audiences, and though there remains the looming prospect Google and Apple, loom is all they’ve actually done so far in terms of changing the weather in the TV marketplace.

That marketplace is essentially made up of content providers and broadcasters / network providers to distribute it, with prices determined by the supply and demand variables between them. Owning a good deal of both camps is a good way to stabilise and monetise both businesses. Hence NBC/Comcast, AT&T /Time Warner and, more locally, the constant rumours of BT/ITV or Liberty/ITV.

21st Century Fox is already a maker and distributor, as is Sky, and Murdoch obviously thinks that together – along with the Italian and German versions – they will be stronger and more profitable. And he’s probably right; there’s an inevitability to a company in which Murdoch had, in the first place, been reluctantly reduced to 39 per cent, becoming part of the group. Another weight on the share price has always been the City’s cynicism about how independent the company really was, even after the departure of Murdoch the younger.

Being a shareholder in a Murdoch company – which is inevitably run rather more like a private enterprise – has never been a route to stellar returns compared to peers.

No matter the price, will the regulators let the deal go through? Murdoch has completely split the newspapers from the rest of the group and, anyway, newspapers are not the media force they were. And it is difficult to argue dominant position in the newly fragmented world of VoD and worldwide providers. Sky News would be the only area of content concern but it has shown no tendency to follow the Fox News post-fact furrow and, in any event, is a small part of the news landscape.

Perhaps the toughest test will be over the fit and proper person conditions? But the odds are heavily stacked that the May government (she met with Murdoch in New York in September) will wave it through, as will the European Commission who did so last time. But, you never know. The only thing for certain is it will give our Culture Secretary Karen Bradley a much higher profile – very welcome I’m sure for a minister who has truly risen without trace.

 

 

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