Advanced Television

BSkyB confirms consolidation talks

May 12, 2014

By Chris Forrester and Colin Mann

Following weekend reports that BSkyB was seeking to create a pan-European pay-TV unit, the broadcaster has issued a Statement noting speculation about a potential acquisition of 21st Century Fox’s interests in Sky Deutschland and Sky Italia.

In the Statement, BSkyB says it has a clear set of plans to grow its business in the UK and Ireland, is executing these well and expects to continue to achieve excellent growth and returns for shareholders. At the same time, the Company continuously explores ways to create further value for shareholders.

“As part of this approach, the Company initiated preliminary discussions with 21st Century Fox to evaluate the potential acquisition of its pay-TV assets in Germany and Italy. BSkyB believes at the right value, this combination would have the potential to create a world-class multinational pay TV group,” read the Statement.

“These discussions have not progressed beyond a preliminary stage, no agreement has been reached on terms, value or transaction structure and there is no certainty that a transaction will occur.

Any potential agreement would be subject to external factors including the Sky Deutschland share price continuing to trade on an undisturbed basis. BSkyB’s focus in respect of Sky Deutschland would be to acquire 21st Century Fox’s controlling stake (57 per cent on a fully diluted basis). As a consequence BSkyB would be required to make a takeover offer to the public minority of Sky Deutschland in accordance with relevant German legislation. BSkyB would expect, subject to German minimum offer price rules, to make this offer without a premium.

All Board discussion of this topic is solely within a committee composed of the Independent Directors of BSkyB, in which Directors affiliated with 21st Century Fox do not participate,” the Statement concluded.

Sky Deutschland’s share price closed on May 9 at €6.34, giving the company a market capitalisation of €5.5 billion.

As reported early on May 10, this is not the first time that Rupert Murdoch has attempted to create a European-focused operation. Back in 1998, Murdoch appointed the former chairwoman of Italian public broadcaster RAI, Letizia Moratti, to run ‘News Corp Europe’ and in 2000 announced plans for Sky Global Networks, which again failed to materialise.

Last week, James Murdoch hinted at the expansion plan, saying: “We’ve made no secret of our belief over the years that we think the Skys are strong together,” he said, speaking on a conference call. “Currently our focus is on operating each of those businesses as best we can.”

A report early on May 12 from investment bank Berenberg also highlighted the new scheme (“Back to the Future?”), and suggests that BSkyB will mount a bid to acquire the whole of Sky Deutschland where there are considerable growth – and profitability – forecasts.

However, for Sky Italia there’s more of a concern. “Looking at why BSkyB might want to buy Sky Italia, we are somewhat at a loss to see many reasons. This is not a fast-growing business like SkyD, but one that is under pressure, albeit in much better shape when Fox (or News Corp as it was then) took over and merged Stream with Telepiù back in 2003. From a financial return perspective, we do not believe that €5bn will represent a very good deal for Fox: we estimate that at least €2bn has been invested in the project, but over a 15-year period,” says the bank.

Shares of Sky Deutschland rose 7.4 per cent in early trading Monday 12 May. BSkyB was down 2.5 per cent.

Paolo Pescatore, director, apps and media, CCS Insight, suggests there is a sound business case for the move in light of the activities of Netflix and other web TV players to expand their presence in Europe. “By consolidating these three businesses, BSkyB would be in a good position to become the first credible pan-European pay TV provider. The deal would give BSkyB a significant competitive advantage in negotiating multi-territory licensing deals, particularly exclusives for big name shows, movies and sport. Any deal made will be purely focused on synergies, be it acquiring content, securing supplier relationships and creating a more competitive market position with rivals such as Amazon and Netflix who have strong aspirations to be leaders in delivery of video over the Internet. Any deal would have to satisfy the European regulators, especially Ofcom, but if approved, the company would be a force to be reckoned with in Europe,” he asserts.



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