BSkyB Confirms Pay TV Talks With 21st Century Fox -- 5th Update

By Dow Jones Business News, 

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' websites.

"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 company."

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 shareholders.

"[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 broadcast-media sector.

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 U.K.

Nicholas Winning contributed to this article.

Write to Ian Walker at and Caitlan Reeg at

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Referenced Stocks: FOX , FOXA , LBTYA

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