Deal extends BSkyB’s European reach and fills Murdoch war chest
The company is buying up the whole of Fox’s Sky Italia and 57.4% of Sky Deutschland
Friday 25 July 2014
BSkyB created a European pay-TV empire on Friday in a £7.3bn spending spree, at the same time refilling Rupert Murdoch’s war chest for another takeover attempt for Time Warner.
The most significant deal for the company since Sky merged with British Satellite Broadcasting in 1990 sees BSkyB virtually doubling its customers to 20 million at a stroke. After months of talks the company – 39 per cent owned by Mr Murdoch’s 21st Century Fox – is buying the whole of Fox’s Sky Italia business for £2.45bn as well as its 57.4 per cent stake in Sky Deutschland.
Including a voluntary offer to Sky Deutschland’s minority investors, BSkyB could end up paying up to £7bn in cash as well as transferring its 21 per cent stake in the National Geographic Channel, valued at £382m.
The BSkyB deal delivers £4.9bn in cash into Fox’s coffers for Mr Murdoch to potentially fund another tilt at media giant Time Warner after his $80bn (£48bn) takeover offer for the company was rebuffed last week. Mr Murdoch offered $85 a share while Warner’s board is reportedly looking for nearer $100.
But BSkyB has also created a European powerhouse, with a leading pay-TV business in three of Europe’s four biggest markets and lifting its number of customers from 11.5 million to 20 million. Revenues will surge nearly 50 per cent to more than £11bn and the company gains a new source of growth away from the UK.
Sky Deutschland, which also encompasses Austria, has revenues of £1.3bn and 3.7 million customers while Sky Italia has 4.8 million customers and £2.3bn in revenues. But subscription channels remain less popular in Europe than in the UK and the deal opens up almost 100 million households as potential new customers, 66 million of which do not have pay TV, and is expected to reap £200m in savings in two years’ time. Its chief executive Jeremy Darroch said: “The three Sky businesses are leaders in their home markets and will be even stronger together.”
Analysts said the price was in line with expectations, although it would affect Sky’s credit rating in the short term. The shares fell 50.5p to 874.5p as the company sold 156 million to help pay for the deal.
Claire Enders, a media analyst, said the deal showed BSkyB was moving to build its business beyond Britain and growing competition with BT. “It’s now focused on transporting its technology and its production skills into other markets where there is demand for cutting-edge TV,” she said.
21st Century Fox is committed to returning cash to shareholders – having returned $4bn last year – but Mr Murdoch has said these returns will be “executed regardless of any potential acquisition or investment activity” and Wedbush analyst James Dix said that “would not prevent a renewed, higher offer for Time Warner”.
The deal overshadowed results from BSkyB which reported a 7 per cent rise in revenues to £7.6bn although operating profits dipped to £1.26bn in the year to 30 June, due in part to the rising cost of Premier League fixtures. The company added 342,000 customers over the year – its highest rate of growth for three years – and 75,000 over the latest quarter.
BSkyB connected nearly three million of its set-top boxes to the internet this year, allowing customers to download entire box sets of hit shows. Game of Thrones, 24 and Grey’s Anatomy were each downloaded 10 million times over the year. The climax to a tense Premier League season also saw Sky Sports gain its highest audience share for seven years.
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