Britain's BSkyB has agreed to pay US$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 ten per cent of its issued share capital.
The deal, which makes BSkyB the leading pay-TV provider in Europe, adds to a flurry of consolidation in the global media sector as traditional entertainment companies seek to bulk up to compete against more nimble Internet rivals.Fox is expected to use the proceeds to fuel its pursuit of Time Warner, which recently rejected Fox's initial US$80 billion bid.
BSkyB had flagged a possible deal for Sky Deutschland and Sky Italia in May. The price announced yesterday was slightly lower than expected by some analysts and the cost and revenue benefits higher.But BSkyB's shares fell five 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 US drama programing to more than ten million homes. Of 97 million households in the five countries it wants to target, 66 million are yet to take pay-TV.
European tie-up
Fox owns 100 per cent of Sky Italia, 57 per cent of Sky Deutschland and 39 per cent of BSkyB. BSkyB will pay �2.45 billion (US$4.2 billion) for Sky Italia and �2.9 billion for Fox's 57 per cent stake in Sky Deutschland.Under German takeover law, BSkyB also has to make an offer for the minority investors in Sky Deutschland, but with only a small premium on the table, analysts doubt that many will sell. The overall price for the deal would rise to around �7 billion if German investors did sell out.
For Sky Italia, the price 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 US$7.2 billion. The placing raised �1.4 billion, according to traders.In the eyes of many media executives and investors, programming and content are now seen as more valuable than the infrastructure that carries it to people's homes.
That change has been driven in part by firms such as Netflix and Google's Youtube, which have taken away viewers from traditional pay-TV services delivered by satellite operators or cable companies.The shift has led some like Murdoch's Fox to concentrate more on content, but for those like BSkyB that remain in both content and distribution, they need to invest heavily in technology and fresh programming to see off the challenge.
Reuters