The future for BSkyB?

Journalist, BBC commentator and founding Chairman of BSkyB forerunner Sky TV Andrew Neil, addressing SES Astra’s annual Satellite Monitor unveiling, gave some valuable clues as to how the current News Corporation/BSkyB ownership predicament might unfold.

‘First, the Murdochs have to go,’ Neil implied. He explained that the current 39 per cent News Corp ownership position at BSkyB was an extremely difficult position for the UK regulator to tolerate given the problems within News Corp, and in particular the News International publishing division. News International continues to generate negative headlines in Britain and will do so for some months to come.

Moreover, Neil said that simply having James Murdoch as Chairman had the inevitable consequence of clouding its own corporate thinking as regards its own future as Europe’s leading pay-TV operator.

James and Rupert Murdoch are both anxiously awaiting the report due shortly from the influential UK all-party House of Commons Media Select Committee, and the Committee’s  report could be devastating for them both. Indeed, one of the reasons for its long-winded delay is – says Neil – because the Committee is still deciding how rude to be towards the Murdochs. The risk – and for many observers almost a given – is that James will end up being pilloried by the report. Neil says there is a potential problem in that the report  ideally should be unanimous; however the most vocal critic of all things Murdoch-related is MP Tom Watson, and he might abstain from signing the main report and issue his own, probably much sterner, minority report. Either way it looks like severe problems for News Corp.

In fairness, this is a tough position for BSkyB, which by common consent, has tried to stay well aloof and distant from its cousin’s problems!  Neil says BSkyB has an enviable reputation in the City and within financial circles generally. In particular, CEO Jeremy Darroch has not put a foot wrong, and the general feeling is that the broadcaster’s share price is being held back dramatically by what is now the ‘Murdoch effect’. Losing the pair would be the best news that long-suffering investors could hear.

It seems that BSkyB, as would be expected in a well-run business, has a robust succession plan in place should James Murdoch be forced out of the Sky chairmanship by UK regulators, or just his own wish to escape the near-permanent hounding.  New non-executive directors have recently been appointed to the BSkyB board, and a favourite to assume the chairmanship is Martin Gilbert from investors Aberdeen Asset Management, suggested Neil.

But perhaps the timing is also right to imagine a BSkyB without the Murdoch name as part of the structure. Despite their extremely close involvement in Sky’s formation (since pre-launch back on February 15, 1988) and its subsequent ‘merger’ with BSB, and its business over the past 25 years, it seems – at least according to Rupert Murdoch’s deputy Chase Carey – that News Corp doesn’t want to stick with investments where it does not have total control. He has repeated this mantra frequently over the past few months. In other words, an exit strategy by News Corp from BSkyB is quite possible, and perhaps even probable.

However, if this is correct then who might be a willing buyer?  Stock market rules require any major incoming buyer seeking anything like the 39 per cent News Corp stake would have to make a formal offer for the whole of the company. Investors holding that 61 per cent stake might welcome an exit provided their premium was adequately rewarding. And remember News Corp itself was prepared to offer something of a premium when it tried to take greater ownership of BSkyB a year and more ago.

Exiting could permit the likes of Disney-ABC, Time-Warner or any other international media player with very deep pockets, to enter the UK market in a heavyweight fashion. But the bill would be huge, and while a handful of Russian oligarchs, or a Carlos Slim, might make the commitment, Ofcom and the British government might just prefer the ‘devil we know’.

But Andrew Neil posited a potentially quite different scenario. “What if,” he asked, Rupert Murdoch were offered a semi-retirement option, where his beloved newspaper division were to be spun-off as his own pride and joy, and quite separate from News Corp? Neil suggested that this move could cleanse the Murdoch name, and his coterie of close colleagues from their non-exec roles on News Corp’s  board, and establish a Murdoch-free zone at the top of the company. Neil also suggests that such a move, as well as boosting News Corp’s share price, might also allow News Corp to re-start its bid to take full and legitimate control of BSkyB. And the UK regulator could do very little to object.

Of course, as Andrew Neil stressed, this is all very hypothetical.

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