OP ED: Murdoch makes each way bet on the Murdoch effect
June 16, 2010
Rumours of a bid by News for BskyB come and go like the seasons. But there was never much doubt that when he judged the time was right Rupert Murdoch would try and retake control of Sky.
It is twenty years ago that he lost control and he has wanted back ever since. When Sky, with its better more aggressive marketing and ruthless cross promotion in News newspapers, fought BSB to a standstill in 1990 many saw it as a victory. But senior Sky executives were actually quite bitter that Murdoch, on the very verge of bankruptcy in America, gave up half the company to BSB shareholders in the peace deal.
At the time Murdoch had ‘bet the farm’ (the usual modus operandi of modern times’ most risk orientated media baron) on The Fox Network and had been caught short by a US advertising recession. Massive debts meant he was held to ransom by some small Mid West bank holding a note for a few million dollars and the casualty was control of BskyB.
Through this recession (though still prepared to take on the risk others fear – he bought Dow Jones last year) he’s hoarded the cash from his now resilient Fox Network and blockbuster movie successes. And now he’s betting he can prise off the other BskyB shareholders, not least because they realise that as a fellow shareholder he’s their best friend and their worst enemy.
This is always the conundrum for Murdoch partners or, indeed, shareholders in News itself. The business you’re in wouldn’t be there if they weren’t involved but, because they are involved, there’s always a discount to other media firms, including many that have demonstrably less valuable assets. This is partly because News seems to be in a perpetual battle with regulators – it’s a boundary pusher par excellence – and partly because Murdoch is always likely to ‘bet the farm’ on his next great idea. He treats a public company like a private empire and you either accept that or sell up. The chances he’d build an $8bn+ cash pile and then spend it on a stock buyback were nil.
And it is the Murdoch effect that will make the other BskyB shareholders sell once the price is right, or right enough. No one is going to make them a better offer (or any offer at all) while Murdoch holds 39% (can you imagine how high the offer would have to be for Murdoch to accept?) And he’s made his move as new anxieties crowd in; the Ofcom / Competition Commission ructions, the uncertain evolution of OTT (including the involvement of giants like Google), and 3D. Shareholders will be nervous BskyB is on the brink of another round of dividend sapping investment and will decide this is a good time to get off what has been an exhilarating and lucrative ride. The only caveat is Murdoch will have to come up with the cash (and therefore take on substantial debt again); it is rumoured they’d like to make part of the offer in News shares, not something, for all the reasons above, many other shareholders are likely to accept.