Murdoch’s Bid For All Of BSkyB Pricks Hornet Nests On Both Sides Of The Atlantic

Philip Stone June 16, 2010 (Follow on Twitter)

The bid by Rupert Murdoch’s News International for the 60.9% of British satellite TV BSkyB that it doesn’t own for a price that could well end up close to $8 billion – about what the company now has in the bank – is opening hornet nests on both sides of the Atlantic.

In Europe it means British regulators will be poking around whether owning four national newspapers and owning the main satellite TV system that has a well-regarded all news channel is too much of a good thing, and the European Union (EU) regulators will be rubbing their hands in glee to have the opportunity to poke their fingers into News Corp., that also owns outright Sky Italia, and has part ownership in Sky Deutschland.  

And in the US News Corp investors will be taking a long hard look at whether this is a good use of the company’s funds. Instead of spending the money on BSkyB, for instance, why not return some of that money in the bank to investors via share buybacks, higher dividends and the like?

News Corp says it plans to borrow around $4 billion to complete the deal. The current offer of 700 pence a share would cost about $7.3 in total, but the independent directors have turned that down saying a figure starting with “8” would be acceptable, and if that is what it eventually £takes then that means another $1 billion. Usually shareholders like the idea of a company investing its funds rather than paying them back to shareholders, so the likelihood is that the big important investors will be okay with the deal.

Regulators in Europe, however, could be another story. The Brits probably won’t make too much fuss because Murdoch will consider this as Conservative Prime Minister David Cameron’s payback time for the Murdoch newspapers fully supporting him in the May general elections. But the Cameron coalition government is portraying itself whiter than white so the Office of Fair Trading could well go through the illusion of a long examination even if the decision is already made. But if Cameron really wanted an out then he has it in the Business Secretary who is a Liberal Democrat and he has the power to turn the deal down on flimsy grounds.

Europe, on the other hand, could be a real mess. News Corp. lawyers will be working hard to get the EU to conduct just a low-level “phase one” cursory examination and approve the deal with a month, but it is very unlikely that the EU, finally given a golden opportunity, to really take a look at News Corp business in Europe with a microscope will turn down the opportunity.

That would mean a “phase two” investigation that would take many months and the EU could ask for so much information that it basically X-rays or scans the company, seeing right inside every nook and cranny.

The very fact that Murdoch himself has stayed out of the limelight in various conference calls about the deal probably is a sign that News Corp recognizes its boss is probably a bull to the European regulators red flag and News Corp doesn’t want to rattle any more cages than it has to, so the boss keeps a low profile.

The fact that News Corp sees $7-$8 billion spent on the part of BSkyB it doesn’t already own is another good indication that Murdoch really likes the subscription business whether it be TV or from news sites. BSkyB is a fantastic success story -- a business for 20 years it is now subscribed by 9.7 million households – target is 10 million – and its operating profit for the first nine months of this fiscal year which ends in July was £645 million ($950 million, €775 million). The current proposal values each Sky subscriber at about £1,300 ($1,900, €1,565) which is hardly any premium over such valuations in the Americas so there is room for an increased bid, but whether it really has that “8” as a first number is questionable.

But how many readers remember that 20 years ago Murdoch almost lost his empire over British satellite TV? There were two competing money-losing firms – Sky and British Satellite Broadcasting (BSB) – and both were hemorrhaging money (BSB some £8 million a week; Sky some £2 million) and Murdoch already had spent some £400 million. Obvious to everyone this could not continue and survival meant a merger, but both sides played hardball until the very last minute. The whispers at the time said Murdoch’s financial situation was so precarious he had a cushion of just a few hours before he would have to throw in the towel when the merger with BSB was finally agreed. The rest, as they say, is history; Sky turned its first operating profit in 1992 and never has really looked back since.

So, after investing some $5 billion in buying Dow Jones in 2007, only to have the investment written down within a year by about half, Murdoch’s next big investment comes in British satellite television. It’s probably not what people expected, but then again, Murdoch has built his empire on doing what people didn’t expect him to do.

See also in ftm Knowledge

Rupert Murdoch and News Corporation

News Corporation has a global footprint. Rupert Murdoch has a global fingerprint and when he talks everybody hears it. Update includes News Corporation and News International resturcturing, European television and newspapers. 108 pages PDF (April 2009)

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