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BSkyB to buy Sky Italia and Sky Deutschland for £4.9bn cash BSkyB to buy Sky Italia and Sky Deutschland for £4.9bn cash
(about 5 hours later)
BSkyB is to become a pan-European broadcasting company after agreeing to buy Sky Italia and Sky Deutschland from their parent group, Fox, for a combined £4.9bn in cash. Rupert Murdoch will collect nearly £5bn after BSkyB agreed on Friday to buy out Sky Italia and Sky Deutschland from the media magnate's 21st Century Fox group.
Rupert Murdoch's 21st Century Fox will maintain its 39% stake in the enlarged Sky, which will bring together 20 million customers in three of Europe's richest economies. The transaction will give BSkyB 20 million pay-TV customers across Europe and is the biggest shakeup for the satellite broadcaster since it was created 24 years ago through the merger of Murdoch's Sky with British Satellite Broadcasting.
In the biggest shake-up since the satellite broadcaster was created 24 years ago through the merger of Murdoch's Sky with British Satellite Broadcasting, the British group will also sell its 21% stake in the National Geographic Channel International to 21st Century Fox for £382m. Murdoch will maintain a foothold in the European pay-TV business through 21st Century Fox's 39.1% stake in BSkyB.
"This transaction will create a world-class, multinational pay TV business with enhanced headroom for growth and immediate benefits of scale," said the Sky boss, Jeremy Darroch. "The three Sky businesses are leaders in their home markets and will be even stronger together. By creating the new Sky, we will be able to use our collective strengths and expertise to serve customers better, grow faster and enhance returns." "The new Sky will be a world-class, multinational pay-TV business headquartered in the UK, anchored in Europe," said BSkyB's chief executive, Jeremy Darroch. "It's the right time for Sky to make this move and we think it can create a lot of value for shareholders."
Sky will issue 156m shares to fund the deal, equivalent to nearly 10% of its existing free float. Fox has committed to buying enough of these shares to maintain its current holding in Sky. The merger better positions BSkyB to compete with John Malone, a longtime Murdoch rival who is building Liberty Media into Europe's largest cable television business with control of Virgin Media and a slice of ITV in the UK. It also provides a buttress against the growing distribution might of Apple, Google, Amazon and Netflix, which are using the internet to build multibillion-dollar video businesses.
During his years as chief executive and chair of BSkyB, Rupert's son James argued – in public at least – that there were few synergies between Sky's European businesses. But on Friday he welcomed the merger. With BSkyB's UK customer base now at 11.5 million, room for growth in its home market is limited. But pay television is less popular and less profitable in Italy and Germany, and the expanded business will operate in a market numbering 97m households, 66m of which have yet to take any form of pay TV.
"We have always believed that a combination of the European Skys would create enormous benefits for the combined business and for our shareholders," said James, who is co-chief operating officer of 21st Century Fox. "Ultimately, a pan-European Sky is good for customers, who will benefit from the accelerated technological innovation and enhanced customer experience made possible by a fully integrated business." Over the last five years, BSkyB has more than doubled its paid-for subscription product base and increased revenues by 43% to £7.6bn, while profits have increased 56% to nearly £1.7bn. It says the expanded business – which will serve the UK, Ireland, Germany, Austria and Italy – could make similar gains.
The European deal will see Sky acquire Fox's 57.4% interest in the German business for £2.9bn, equivalent to €6.75 (£5.35) per share, a slight premium to Thursday's closing price of €6.66. The same sum has been offered to minority shareholders, although it may not be enough to sway those who are insisting Sky pay a clear premium before they relinquish their holdings. "The headroom for growth in Italy and Germany is much greater," said Paul Richards, an analyst at Numis bank. "BSkyB has executed really well in the UK over the last decade or two and is looking to export that capability into other markets in Europe."
Sky Italia is being acquired for £2.45bn, made up of £2.07bn in cash and the balance in the form of the National Geographic stake. With increased annual revenues of £11.2bn thanks to the contribution from its continental units, and a total of £4.6bn to spend on screen each year, BSkyB claims it will have the biggest programming budget of any European broadcaster.
If all of Sky Deutschland's minority holders sell up, the deal could net Fox up to £7bn with which to fund an even more ambitious plan – the takeover of Time Warner. News broke last week of an unsolicited $73bn (£43bn) offer for the Hollywood powerhouse behind Harry Potter and Game of Thrones. Combining Time's HBO television production house and Warner Brothers with Fox would create a content giant capable of holding its own against the growing distribution might of Apple and Google's electronic entertainment stores, but with a competitively contentious 30% of US box office receipts. As in the UK, BSkyB will offer its content not just over satellite but over the internet via its Now TV service, which is operated as a standalone brand to compete with pay rivals such as Netflix, and over mobile via its Sky Go platform or deals with operators such as Vodafone. However, its German and Italian businesses are not expected to follow the UK in offering broadband and phone calls for the time being.
Over the last five years, BSkyB has more than doubled its paid-for subscription product base and increased revenues by 43%, and says the expanded business will have a similar opportunity for growth, with 97m addressable households, 66m of which have yet to take pay TV. Darroch will continue to run the UK and Ireland arm but will expand his role to oversee the expanded business. He said BSkyB may cut some jobs but would probably increase overall headcount in each of its three main markets.
The acquisition will double Sky's customer base from 11.5m in the UK to 20m when it includes Germany, Austria, Switzerland and Italy; and will increase group revenues from £7.6bn to £11.2bn. By year two, he expects £200m in annual savings from jointly buying programmes, combining IT systems, producing live events, commissioning, rationalising suppliers and, over time, in product and set-top box development.
Sky expects to save £200m in annual costs from jointly buying programmes, combining IT systems, producing live events, commissioning, rationalising suppliers and, over time, in product and set top box development. In annual results released on Friday, BSkyB beat City forecasts on profits, reporting earnings per share of 60p against an expected 57.6p, while revenues came in as forecast at £7.6bn, an increase of 5% on last year.
In annual results released on Friday, Sky beat City forecasts on profits, reporting earnings per share of 60p against an expected 57.6p, while revenues came in as forecast at £7.6bn, an increase of 5% on last year. Despite the battle for customers with BT and its new sports channels, Sky added 50,000 broadband customers in the most recent quarter, ending 30 June, and 76,000 television customers. BSkyB will issue 156m shares to fund the deal, equivalent to nearly 10% of its existing free float. Fox has committed to buying enough of these shares to maintain its current holding in Sky.
Despite the battle for customers with BT and its new sports channels, Sky added 50,000 broadband customers in the most recent quarter, ending 30 June, and 76,000 television customers. The European deal will see BSkyB acquire 21st Century Fox's 57.4% interest in the German business for £2.9bn, equivalent to €6.75 (£5.35) per share, a slight premium to Thursday's closing price of €6.66 and the legal minimum it is obliged to offer under German takeover rules. The same sum has been offered to minority shareholders. Sky Italia is being acquired for £2.45bn, made up of £2.07bn in cash and the balance in the form of a stake in National Geographic which BSkyB is selling to 21st Century Fox for £382m.
Meanwhile, 21st Century Fox is considering its next move in its attempted takeover of Time Warner. News broke last week of an unsolicited $80bn (£47bn) offer for the Hollywood powerhouse behind Harry Potter and Game of Thrones.
However, Murdoch tempered expectations that the proceeds from the BSkyB deal will be funnelled into a new Time Warner bid. The 21st Century Fox chief executive said the group's "number one priority is increasing shareholder value in a disciplined manner" and "we will only consider transactions that fully support this objective".
Combining Time's HBO television production house and Warner Brothers with Fox would create a content giant capable of holding its own against the growing distribution might of Apple and Google's electronic entertainment stores, but with a competitively contentious 30% of US box office receipts.
"We have always believed that a combination of the European Skys would create enormous benefits for the combined business and for our shareholders," said James Murdoch, who is co-chief operating officer of 21st Century Fox. "Ultimately, a pan-European Sky is good for customers, who will benefit from the accelerated technological innovation and enhanced customer experience made possible by a fully integrated business."