By Dow Jones Business News,
May 12, 2014, 09:43:00 AM EDT
By Ian Walker and Caitlan Reeg
British Sky Broadcasting Group PLC confirmed Monday it is in preliminary discussions with 21st Century Fox Inc.
over a multibillion-dollar acquisition of its pay-TV assets in Germany and Italy. The move would bulk up the U.K.
broadcaster's business in Europe amid consolidation across the region's cable and television industry.
The deal would involve the British company buying 21st Century Fox's 57% stake in Sky Deutschland, an investment
worth around EUR3.2 billion ($4.4 billion) based on the company's closing share price Friday. BSkyB would then launch a
mandatory takeover offer for the rest.
BSkyB, which itself has a market capitalization of around GBP13.6 billion, added that this offer would be made
without a premium, subject to German minimum-offer-price rules. Sky Deutschland shares nevertheless rose early Monday,
up as much as 7.2% in early trading in Frankfurt.
The British company would also acquire Sky Italia, a major sports broadcaster in Italy, which is wholly owned by
21st Century Fox.
BSkyB itself is 39%-owned by 21st Century Fox., which until June was part of the same company as Wall Street
Journal parent News Corp. The original News Corp. in 2011 abandoned a planned bid for the rest of BSkyB amid a furor
over reporting practices at one of News Corp.'s U.K. newspapers.
The combined European broadcasting group would have around 20 million subscribers, adding Sky Italia's around five
million and Sky Deutschland's 3.7 million to BSkyB's 10.5 million television customers, according to the companies'
"These discussions haven't progressed beyond a preliminary stage, no agreement has been reached on terms, value or
transaction structure and there is no certainty that a transaction will occur," BSkyB said.
Odey Asset Management LLP--the second-largest holder of Sky Deutschland shares, with an 8% stake--reacted
negatively to the proposal Monday. The firm said the lack of a premium "significantly understates the value of the
Tough antitrust scrutiny in the U.K. and Europe is likely to follow should BSkyB pull off the deal. British
regulatory authorities, including media watchdog Ofcom, and the government are particularly leery about concentration of
ownership in the country's media sector, where Rupert Murdoch, controlling shareholder of both 21st Century Fox and News
Corp, has long had a major a presence through his investments in television and newspapers like the Times and the Sun.
Ofcom declined to comment Monday.
To address possible conflicts of interest in the current deal negotiations, BSkyB said all board discussion of the
issue is solely within a committee composed of its independent directors, which doesn't include directors affiliated
with 21st Century Fox.
"Over the years we've had numerous internal discussions regarding the organizational and ownership structure of the
European Sky-branded satellite platforms. From time to time these conversations have included BSkyB, however no
agreement between the parties has ever been reached," the company said.
In a separate statement, 21st Century Fox also confirmed the talks. Sky Deutschland had no comment.
Some analysts were skeptical about the likelihood of the deal going through and the merits of it for BSkyB
"[It] would be an expensive deal," said analysts at J.P. Morgan. "We don't see substantial synergies and it
wouldn't enhance BSkyB's cash-flow capacity short-term," they said in a research note.
The enlarged pay-TV operator would achieve modest savings in product development and greater leverage in bidding
for sports and movie rights, and have deep pockets for developing for original content, analysts at Credit Suisse said.
But the combined company would have promising growth only in Germany, which has relatively low level of pay-
television penetration, as its subscriber base in Italy has shrunk since 2011.
The BSkyB approach to its German and Italian sister broadcasters follows a number of recent deals in the European
Liberty Global PLC, the cable operator majority-owned by U.S. media magnate John Malone, has made a EUR6.9 billion
($9.5 billion) acquisition of Dutch cable operator Ziggo, subject to approval by the EU's competition regulator which is
investigating the deal. Liberty Global has snapped up a dozen cable operators in Europe in the past year. Earlier this
month, the cable company and U.S. cable firm Discovery Communications Inc. teamed up to buy independent U.K. television
producer All3Media for GBP550 million.
Viacom Inc., controlled by media mogul Sumner Redstone, announced in early May that it would acquire British
broadcaster Channel 5 Broadcasting Ltd. for GBP450 million as the U.S. media company seeks to build its audience in the
Nicholas Winning contributed to this article.
Write to Ian Walker at firstname.lastname@example.org and Caitlan Reeg at email@example.com
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