British satellite broadcaster BSkyB has agreed a £5.3bn (US$9bn) deal to take over sister companies in Italy and Germany and bolster its pay-TV empire.
The DTH firm’s deal with 21st Century Fox, which is controlled by media tycoon Rupert Murdoch,…
British satellite broadcaster BSkyB has agreed a £5.3bn (US$9bn) deal to take over sister companies in Italy and Germany and bolster its pay-TV empire.
The DTH firm’s deal with 21st Century Fox, which is controlled by media tycoon Rupert Murdoch, will see it buy all of Sky Italia for £2.45bn (US$4.16bn) and take a 57.4% stake in Sky Deutschland for £2.9bn (US$4.92bn).
The enlarged company will serve 20 million customers and combines the leading pay-TV businesses in three of Europe’s four biggest markets.
The proceeds will boost 21st Century Fox in its pursuit of US cable giant Time Warner after it failed with an offer worth US$80bn earlier this month.
21st Century Fox, which will continue to own 39% of BSkyB, was formed last year after Murdoch split it away from the News Corp publishing firm.
BSkyB said it will also make an offer for the remaining shares in Sky Deutschland in accordance with German law, bringing the total deal price to around £7bn (US$11.89bn).
It believes there is significant room for growth in the two countries as take-up of pay-TV services by households is much less advanced than in the UK and Ireland, where there is 53% penetration.
BSkyB CEO Jeremy Darroch said: “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.”
Sky will finance the deal through the placing of new shares, as well as from debt and existing resources.
The debt package
The group has entered into a £6.6bn (US$11.2bn) facilities agreement today to help fund the deal. This consists of a €4bn (US$5.38bn) 12-month bridge loan, a three-year term loan comprising €2.5bn (US$3.36bn) and £450m (US$364m) tranches, and a £1bn (US$1.7bn) revolver due November 2019. The first two loans have possible one-year extensions, while the revolver is subject to two one-year extension options.
Barclays, JP Morgan and Morgan Stanley are mandated lead arrangers and bookrunners for the transaction.
The group also said it intends to tap the debt capital markets to finance its acquisition and refinance the first two loans in its facilities agreement to provide longer-term financing.
The Moody’s ratings agency put BSkyB’s Baa1 ratings on review for downgrade following the announced European acquisitions.
Europe’s promising DTH market
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “Sky is clearly taking the strategic view that pay-TV, already ingrained in the US culture, will become prevalent in Europe.
“As such, it would be well positioned to benefit from this growth, given a customer base of the newly enlarged group approaching 20 million customers as a starting point.”
The company’s European expansion was announced at the same time as it said annual operating profits dropped 5% to £1.26bn (US$2.14bn) due to investments in connected TV services and Premier League football rights.
It ended the year with 11.5 million customers, an increase of 342,000 over the year and 75,000 in the quarter. The company said it added a third more customers than in the previous year, its highest rate of growth in three years.
BSkyB is facing increased competition from UK telecoms incumbent BT, which launched its own sport channels last August and has bought strong packages of Premier League and Champions League football rights.
It is also up against movie and drama competition from internet streaming services such as Netflix and Amazon Prime.
BSkyB said its focus in the last year had been on driving take-up and usage of connected TV services.
The company connected three million Sky+HD boxes to broadband in the year, more than doubling its base of connected homes to 5.7 million, more than 50% of all Sky TV customers.
This roll-out drove a threefold increase in On Demand usage with its expanded box sets offering proving popular.
Overall, the company said it added 3.1 million paid-for products in the period, including services such as broadband and multiscreen. Revenues were 6.5% higher at £7.6bn (US$12.9bn).
Darroch added: “We have delivered an excellent year of growth as customers responded in record numbers to the combination of high-quality TV and innovative new services.”
It listed Barclays and Morgan Stanley as its financial advisers.
