Murdoch's BSkyB in talks to buy out Sky in Germany and Italy

http://www.theguardian.com/media/2014/may/12/bskyb-murdoch-sky-pay-tv-germany-italy

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Rupert Murdoch has revived his ambition to create a pan-European pay-TV giant, with a $14bn (£8.3bn) plan that would see BSkyB buy out its sister companies in Germany and Italy.

The move comes three years after Murdoch was forced to abandon his bid to take full control of BSkyB, in which his 21st Century Fox group owns a 39% stake, after the phone-hacking scandal engulfed his media empire. If a deal can be struck, Murdoch will achieve a long-held aspiration to bring together almost 20 million customers, more than £11bn in revenues and £1.3bn in profits.

BSkyB said it had begun "preliminary discussions" about buying Fox's 57% stake in Sky Deutschland, which would be followed by a buyout of its remaining shareholders, and 100% of Sky Italia.

"BSkyB believes at the right value, this combination would have the potential to create a world-class multinational pay-TV group," said BSkyB.

One analyst said the latest manoeuvre could be a prelude to a renewed takeover bid for the UK's largest pay-TV broadcaster in the future. However, it is understood that Fox is not planning to increase its stake in BSkyB as part of any deal, thus avoiding the regulatory scrutiny and public and political pressure in Britain that sank Murdoch's last plan.

A deal could face an official investigation on two fronts: Brussels and Ofcom in the UK. European regulators cleared Murdoch's previous attempt to take full control of BSkyB, but the bid fell foul of a cross-party revolt in the wake of the hacking revelations.

Sajid Javid, the newly appointed culture secretary, could call on Ofcom to conduct a public interest test if he has concerns about a deal. However, one competition specialist said that it appeared to be "a European deal with little to worry UK authorities".

The British operation, which has more than 10 million pay-TV customers, will be the engine of the proposed Sky Europe operation, accounting for 57% of subscribers, 68% of revenues and almost 90% of profits.

Claire Enders, chief executive of the media-strategy firm Enders Analysis, said: "This is a very different sort of transaction to what Murdoch tried last time.

"Timing-wise, this is clearly not a takeover of BSkyB by the back door using financial structures as part of the deal to get around constraints [in taking over BSkyB]. This deal has been constantly raised over the years, it is strategically motivated and there are operational efficiencies."

She added that the deal would "liberate" James Murdoch, the former Sky and News UK chairman, who was heavily criticised by Ofcom for his handling of the phone-hacking scandal. Murdoch is the co-chief operating officer of Fox.

Rupert Murdoch has yet to see the back of the phone-hacking scandal, with Rebekah Brooks, the former chief executive of his UK newspaper operation News UK, in court on four charges related to phone hacking at News of the World, which she denies.

Enders said Fox would almost certainly consider another attempt at taking full control of BSkyB in the future. "The attempt to take control of BSkyB before was the first stage in a plan for full consolidation," she said. "Step two or step three could be [taking 100% control of BSkyB]".

BSkyB's strategy mimics that of Murdoch's occasional rival John Malone, who has spent billions over the last decade building Liberty Global's cable TV empire. Last year he spent £15bn acquiring Virgin Media, bringing his global customer base to more than 24 million, with 80% of revenues coming from its pan-European operation.

BSkyB has a more sophisticated operation than its German and Italian sister companies and believes it can boost the proportion of customers that take multiple products, such as TV and broadband, as well as introduce services such as the internet streaming service Now TV and the film service Sky Store.

BSkyB's UK and Ireland operation can reach 27m households, while Sky Europe would have a target of 94m households across five countries.

However, BSkyB's share price dipped almost 2.5% as investors mulled over whether regulatory scrutiny could kill a deal, and whether it would be possible to make significant cost savings from pan-European sports or movie rights deals. "I'm sure the European commission would not allow joint buying on sports, and potentially on films," said Enders.

One key investor involved in the deal also voiced objections. Odey Asset Management, an 8% shareholder in Sky Deutschland, said that BSkyB is "significantly understating the value of the company".

BSkyB warned that there was no guarantee that a deal to create Sky Europe will come to fruition. "These discussions have not 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," the company said.