Media powerhouse to tap into 20m-strong customer base
Britain'sBSkyB has agreed to pay $9 billion to buy Rupert Murdoch's pay-TV companies in Germany and Italy, taking its hunt for growth into Europe by creating a media powerhouse with 20 million customers.
BSkyB, in which Murdoch's 21st Century Fox is also the largest shareholder, will pay for the deal using cash, debt, its stake in a TV channel and a placing of shares that represents around 10 per cent of its issued share capital.
The deal adds to a flurry of consolidation in the global media sector and Fox is expected to use the proceeds to fuel its pursuit of Time Warner, which recently rejected Fox's initial $80 billion bid.
BSkyB had flagged a possible deal for Sky Deutschland and Sky Italia in May. The price announced on Friday was slightly lower than expected by some analysts and the cost and revenue benefits laid out by BSkyB were greater than anticipated. BSkyB's shares still fell 3.4 per cent, pulled lower by the plan to issue stock and suspend a share buy-back.
"It is a bit of a step in the unknown for Sky," said Conor O'Shea, an analyst at Kepler Capital Markets. "For the first time, it will go from UK-focused to European and be asked to prove that it can add value from being larger."
O'Shea has a "buy" rating on BSkyB shares.
Facing the toughest market conditions in its 25-year history, BSkyB has decided its future growth lies in creating a European pay-TV leader that will operate in Britain, Ireland, Germany, Austria and Italy.
BSkyB dominates British pay-TV, offering its premium sports, movies and U.S. drama programming to more than 10 million homes. It hopes to apply the formula in Italy and Germany, where pay-TV is not yet as popular or as profitable.
Of 97 million households in its markets, 66 million are yet to take pay-TV.
"Sky is clearly taking the strategic view that Pay TV, already ingrained in the US culture, will become prevalent in Europe," said Richard Hunter, Head of Equities at Hargreaves Lansdown.
Fox owns 100 per cent of Sky Italia, 57 per cent of Sky Deutschland and 39 per cent of BSkyB. BSkyB said it would pay £2.45 billion ($4.2 billion) for Sky Italia and £2.9 billion for Fox's 57 per cent stake in Sky Deutschland.
The payment to Fox for Sky Italia will be made up of cash and BSkyB's 21 per cent stake in the National Geographic Channel, valued at around £382 million.
Fox said it would subscribe to the share issue to keep its stake in BSkyB stable, meaning it will take net proceeds from the deal of around $7.2 billion.