The deal follows several years of intermittent talks pitting Mr Murdoch against Leo Kirch, the 72-year-old Bavarian media mogul who launched his empire in the mid-1950s by acquiring television rights to Hollywood films. Privately held Kirch Group has struggled in recent years amid startup pay-TV losses thought to exceed pounds 1bn.
"This acquisition gives BSkyB the opportunity to acquire a significant foothold in the German market," said Tony Ball, chief executive of BSkyB. "The consolidation of DF1 and Premiere into KirchPayTV creates a single brand [and] gives significant opportunities for growth." DF1 and Premiere had been competing pay-TV networks.
BSkyB will settle the consideration with a DM1bn (pounds 320m) cash payment funded through a rights issue at or prior to the deal's completion. It will also issue 78 million new BSkyB ordinary shares to KirchPayTV at a price of 797.5p, giving the German company 4.3 per cent of the enlarged group's share capital, worth pounds 622m.
"The key thing is that Kirch/Premier is in roughly the same position that BSkyB was following the BSB-Sky merger" in 1990, said Mathew Horsman, media analyst with Investec Henderson Crosthwaite. "The competing distribution platform problems have been solved and DM1bn of debt has been turned into equity, and so provides cleaner prospects."
BSkyB executives last night were playing down any cost or programming synergies that the BSkyB-Kirch link might provide, even though industry watchers said the deal would make little sense without them. Analysts attributed the silence to the need to secure approval from competition authorities in Brussels, as both companies dominate their respective pay- TV markets.
Although the deal will dilute BSkyB earnings for up to four years, analysts see major long-term benefits from the British company securing a foothold in the relatively undeveloped, and potentially huge, German market. KirchPayTV has only 2 million subscribers, although that number is expected to double by 2002, paving the way for a flotation of the company in 2003.
Should KirchPayTV fail to achieve operating cash flow and subscriber numbers in line with undisclosed estimates, BSkyB will have the option of either selling its stake to Kirch Group, the parent company, or increasing its shareholding in the pay-TV arm.
BSkyB stock ended down 6.5p at 791p.
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