Investors to ask Sky for special dividend and overhaul of board

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The Independent Online

BSkyB executives are set to face calls from investors to return capital, possibly through a special dividend, in the wake of the dramatic collapse of News International's bid yesterday.

James Murdoch's role as chairman of Sky is also facing further scrutiny as the investigations into News Corporation, where he runs the European businesses, heat up.

Pirc, a corporate governance adviser, called for the appointment of an independent chairman at the group. Alan MacDougall, managing director of Pirc, said: "Questionable governance practices have been tolerated at BskyB for a long time, and unfortunately many shareholders have not effectively challenged them. That must change."

Shortly after News Corp walked away from the deal – triggering a £38.5m break fee – Sky released a statement saying it remained a "compelling investment case and significant growth opportunities".

The chief executive Jeremy Darroch said nothing had changed: Sky would continue its "clear, consistent strategy" that has seen it secure more than 10 million customers and would continue "building a larger, more profitable business for the long term".

The shares dropped 4 per cent after the news, but bounced back to close up 13.5p at 705.5p. "They are at a level that looks like fair value," one analyst said.

Alex DeGroote, an analyst at Panmure Gordon, said: "It has good growth, a strong balance sheet in a market with extremely high barriers to entry."

The company will have to manage stock market expectations after the breakdown of the deal, he added. "There will be questions over a special dividend or a share buy-back. Shareholders will be looking at a share price that is down 20 per cent, with the bid off the table." This is likely to be strengthened by a shift in the shareholder register, with short-term investors, such as hedge funds, making way for longer-term stakeholders.

A Sky insider said the question of capital returns is likely to come up when the company releases its preliminary results on 29 July.

Mark Kelly, a special situations strategist at Olivetree Securities, said: "With such a powerful balance sheet there will be calls for BSkyB management to reward loyal shareholders by returning capital, perhaps through special dividends – or even performing acquisitions, although, of course, 40 per cent holder News Corp still potentially stands in the way of any such move."

While News Corp left the possibility of eventually returning to the table open yesterday, the market now has to focus on valuing Sky as a stand-alone company. Mr DeGroote said that after 18 months of bid speculation in the share price "focusing on the fundamentals will require a fresh bottom-up look at the forecasts". He added: "The company is still priced as a high growth stock, with improving margins and debt coming down. "

Claire Enders, at Enders Analysis, believes there could be a less aggressive Sky following the collapse of the deal. "It has always been aggressive, cocky and about machismo. That will change. It will be more cautious."