The Murdoch father and son have been taken aback by Sky’s directors holding out for £1 billion ($1.5 billion) more from News Corp before it owns the company. So reports the BBC. Sky says it will accept an offer from News Corp worth 800 pence a share for the 61% of the pay TV company it does not own already. This would value BSkyB at £14 billion, costing News Corp £8.5 billion ($12.8 billion). A £14 billion deal would also value the company at 13 times earnings before interest, taxation, depreciation and amortisation. The usual multiple for media deals is 6 times EBITDA. An 800 pence offer would also represent a 46% premium over BSkyB’s average 549p closing price over the past 12 months. Talks are ongoing.
BSkyB’s directors have rejected News Corp’s initial proposal, worth £7.8 billion or 700 pence a share. “James Murdoch and Rupert Murdoch were shocked by the extent of the opposition they met from an organisation they believe works pretty closely to them,” reports BBC news programme Today. Of course, it is not really a takeover as News Corp already controls Sky. It is about who gets the profits from this juicy pay-TV duopoly, and how much this cash flow is worth.
A full bid would use of all of News Corp’s current $8.2 billion in cash reserves. It had been thought that Rupert Murdoch would use all this cash on its balance sheet to invest in growth markets such as Brazil or India, or subsectors doing well such as video gaming. Instead, Murdoch senior has confounded expectations once again by returning to the relatively sluggish UK market.
To the casual observer, it may look as if the Murdochs are controlling both sides of the deal. BSkyB’s chairman James Murdoch also runs News Corp Europe and Asia. James Murdoch has excused himself from negotiations. Taking full control of BSkyB would build up James Murdoch’s business. As former CEO of BSkyB, it is the part of his father’s empire he knows best.
There have been rumours for the past 6 months that News Corp wanted to take full control of BSkyB. The feeling within the TV industry was that there would be a deal sooner rather than later – even if News Corp pooh-poohed any speculation.
Deutsche Bank and JP Morgan Cazenove are advising News Corp, while UBS and Morgan Stanley are advising BSkyB.
The most interesting question is whether communications regulator Ofcom approves the deal. National government can still decide whether these kinds of media acquisitions are in the public interest. It could take up to a year before there is a decision.
The new Conservative government will want to steer well clear of whatever Ofcom does decide though. Murdoch’s Sun newspaper was very vocal in its support of Prime Minister David Cameron during the election. Rupert Murdoch has already been spotted slipping in to No. 10 Downing Street. The government, which has been accused of parroting Murdoch media policy, will want to be seen as impartial. It would be a delicious irony if, after years of his newspapers bashing the European Union, the Murdochs appeal to the European competition authority to reverse Ofcom’s decision.