Sky deal will be slow and expensive
March 2, 2011
What do you get an octogenarian billionaire for his birthday? How about the share of Sky he doesn’t already own? Well, luckily for him, it seems that for Rupert Murdoch 80 is the new 60, so he doesn’t need to be in a huge hurry to open his present.
This is just as well because even with the Government’s wave through, this deal won’t close any time soon. The newspaper rivals of News Corporation will go for Judicial Review and, though it will probably fail eventually, the Government handed them more than enough grounds with the mess over Vince Cable’s removal from the decision making process after he was caught declaring war on Murdoch. The rivals may have applauded Cable’s prejudice but they will still use it to claim the process wasn’t proper.
What will give Murdoch a wry birthday smile is that his rivals wholly disingenuous ‘concerns’ about plurality have been brushed aside by the spin-off of Sky News. The News’ threat to close Sky News if it was the obstacle must have concentrated minds as, for sure, no one would buy it (least of all those rivals) on the open market.
Now it will be hived off into a separate company (with News still ownong the same 39% it does of BSkyB) and be awarded a 10 year supply contract by Sky that will underwrite its losses. If it still can’t stand in its own feet after 10 years, will it return to the fold? Or will it be left to wither on the vine? Or is News going to write it a blank cheque? Something News shareholders would object to surely.
Something else News shareholders will object to is to over paying for BSkyB. The increase in profits News had anticipated as Sky tapers down the latest round of investment in HD and populating the market with Sky+ is coming through strongly and the share price has headed north. Add to that the exchange rate has moved against dollar purchases and it all looks very expensive. But, as usual, News’ independent shareholders will take a back seat to the ambitions of the Murdoch clan and I would expect BSkyB to eventually extract a handsome premium to the £7 originally offered.
What won’t have contributed much to the birthday celebrations was the news from ITV that the relative economic recovery and the World Cup saw the advertising gusher fill it with £286m profit. Last time Murdoch tangled with UK deal regulators he was forced to sell up the large part of his share in ITV and booked a loss of £348m – enough to keep Sky News going for ten years. Some comfort, I suppose, News still has 7.5 per cent of ITV.