Rupert Murdoch is pursuing a long-awaited transaction that would transform British Sky Broadcasting Group Plc (BSY) into a European satellite-TV giant while also leaving his U.S.-based 21st Century Fox Inc. (FOX:US) focused on entertainment programming.
BSkyB, partly owned by Fox, is working on a deal valued at about 10 billion euros ($14 billion) to acquire control of satellite carriers Sky Deutschland AG (SKYD) and Sky Italia from Fox, according to people with knowledge of the matter. Fox has 55 percent of Sky Deutschland and 100 percent of Sky Italia.
A deal would give BSkyB, already the biggest pay-TV provider in the U.K., oversight of companies that sell satellite programming to 8.5 million homes across Germany and Italy. By shedding the pay-TV units, Fox would be left with cable and broadcast networks plus movie and TV studios, making it more attractive to investors who want to bet solely on video production -- not distribution.
“I love this idea -- it puts the distribution assets out of the content company’s hands.” said Laura Martin, an analyst with Needham & Co. “This is strategic alignment. It makes for a pure-play content company for Fox, but it’s also good for BSkyB to have a bigger global footprint.”
The companies have been in talks for months, and a deal could be announced this summer, although they could still fail to reach an agreement, said the people familiar with the matter, who asked not to be identified because the discussions are private.
Representatives for Fox, BSkyB and Sky Deutschland declined to comment.
Murdoch’s Fox had previously sought to take full control of BSkyB in 2010. The transaction he’s now contemplating would leave Fox’s stake in the U.K. satellite provider at 39 percent. Fox was forced to abandon its pursuit of full ownership of the company in 2011 amid political opposition after allegations that journalists at U.K. newspapers Murdoch controlled had hacked into celebrities’ phones and bribed police.
Fox’s Sky Deutschland stake is valued at 3 billion euros at market price, and the Sky Italia holding is valued at about 5 billion euros, the people familiar with the matter said. BSkyB plans to offer a premium that could take the sale value to 10 billion euros, they said.
BSkyB last week reported nine-month revenue of 5.67 billion pounds ($9.6 billion), up 6.6 percent from a year earlier, as the Isleworth, England-based company signed up more customers for TV products.
The U.K. broadcaster had 15 million customers at the end of March, up 2.7 percent from a year earlier. Sky Deutschland had 3.73 million subscribers, while Sky Italia had 4.75 million. In Germany and the U.K., cable operators owned by billionaire John Malone’s Liberty Global Plc are the closest competitors for pay-TV users, according to Bloomberg Industries.
BSkyB shares have gained 5.5 percent this year in London trading for a market value of 13.9 billion pounds. They are still down about 6 percent from a 12-year high reached in October, before former phone company BT Group Plc agreed to spend $1.4 billion to shut Sky out of the UEFA’s Champions League and Europa League soccer games. Sky Deutschland shares have fallen 21 percent this year.
Fox gets about one-fifth of its revenue from its satellite investments, with the rest coming from its cable and broadcast networks and its film and TV studios.
Fox itself is the result of a move last year by Murdoch to separate disparate businesses. The company was made independent by cleaving off News Corp.’s entertainment assets from its newspaper and publishing businesses.
While Murdoch agreed to split up News Corp. only after pressure from shareholders following the U.K. newspaper scandal, executives had signaled for years that they wanted to combine the satellite investments.
“We’ve made no secret of our belief over the years that we think the Skys are strong together,” James Murdoch, Rupert’s youngest son and Fox’s co-chief operating officer, said on a conference call this week. “Currently our focus is on operating each of those businesses as best we can.”
With the News Corp. separation complete, moving forward with the satellite combination makes sense, said Brett Harriss, an analyst with Gabelli & Co.
“The spinoff took a year,” he said. “Now they probably feel comfortable to do something like this.”
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