City analysts think News Corp could be forced to pay up to £10.2bn ($16.2bn) for the 61% of BSkyB it doesn’t own. Sky’s shares rose by 11% after announcing strong first-half results this morning. Pre-tax profits at BSkyB rose to £467m in the last six months of 2010, with revenues up 15% to £3.2bn. Rupert Murdoch has flown into London to personally oversee negotiations with the British government. City analysts predict that, with results as good as these, the longer the deal is delayed, the more BSkyB’s share price will rise – and the more News Corp will be forced to pay. Its offer of 700p per share, valuing the deal at £7.5bn, has already been rejected. News Corp is sitting on a £5.42 billion cash pile. The pressure will be on to close the deal before News Corp shareholders question whether the company can really afford it. RBS, the City investment bank, tells me it expects the Sky deal will go through before June. “News Corp wants the deal to close asap and will work with the regulator to achieve that,” says Paul Richards, director of equity research at Numis.
Murdoch’s arrival comes during a week when his News Corporation has become the news, rather than reporting on it. First, there’s UK culture secretary Jeremy Hunt giving the Murdochs more time to come up with ways to reduce News Corp’s media influence if he allows the deal to go through. Hunt said he is minded to refer the proposed BSkyB deal to the Competition Commission if News Corp can’t come up with anything new. Second, there’s the ever-deepening phone hacking scandal at tabloid The News of the World – this morning it was revealed that a reporter had been listening to the voicemail of Sienna Miller’s mother-in-law only last year, despite News Corp swearing it had stamped phone hacking out. News International, the newspaper arm, is desperately trying to cut out any bad apples there. A news editor was fired on Wednesday. And two soccer TV pundits have lost their jobs from Sky’s sports channel for making sexist comments. Not the best of weeks for Rupe.
There’s another wrinkle too. News Corp has already offered to spin off Sky News to avoid a referral to the Competition Commission. Sky News loses £40m a year a year, which, on the face of it, doesn’t make it very attractive. However, I understand that News Corp would guarantee to buy Sky News’s output for at least 10 years. A guaranteed income steam would make Sky News very attractive for any buyer. The rub is that Hunt may insist News Corp spins off Sky News before the deal goes through. And BSkyB’s board will turn the screws on News Corp, extracting the best offer it can, as the price of its cooperation.