British satellite broadcaster BSkyB is in talks over a deal that will expand its pay-TV empire in Europe through the acquisition of Sky Deutschland and Sky Italia.
BSkyB, which is 39% owned by Rupert Murdoch’s 21st Century Fox, confirmed that it is in…
British satellite broadcaster BSkyB is in talks over a deal that will expand its pay-TV empire in Europe through the acquisition of Sky Deutschland and Sky Italia.
BSkyB, which is 39% owned by Rupert Murdoch’s 21st Century Fox, confirmed that it is in the early stages of talks about buying the tycoon’s interests in the two operations, which serve around 8.5 million households.
It would result in a £22bn (US$37m) pay-TV giant with the power to sell services and compete for rights across three key European territories. The move would also consolidate Murdoch’s interests as 21st Century Fox currently owns 55% of Sky Deutschland and all of Sky Italia.
BSkyB said the merger would create “a world-class multinational pay TV group”, with over 17 million subscribers. It is thought that the potential transaction is worth around £8bn (US$13.5bn).
Led by chief executive Jeremy Darroch, BSkyB said it initiated the discussions with 21st Century Fox over the potential acquisition.
The interest comes as BSkyB faces increasing competition in the UK by incumbent telco BT, which launched its own sports channels last August offering free Premier League football if customers sign up to its broadband package.
BSkyB came under further pressure from the group when it lost out in November on the UK rights to show Champions League and Europa League matches to BT, which paid almost £900m (US$1.5bn) to show both Uefa competitions for three seasons from 2015/16.
The broadcaster also faces a growing competitive threat from internet streaming services such as Amazon Instant Prime and Netflix.
Murdoch separated his film and TV interests from News Corporation, which holds his newspaper and publishing businesses, in June 2013 in the wake of the public backlash caused by the UK phone hacking scandal. The split was called for by investors, who wanted to choose which parts of the media empire they invested in.
A statement from 21st Century Fox said: “Over the years we’ve had numerous internal discussions regarding the organisational and ownership structure of the European Sky-branded satellite platforms.
“From time to time these conversations have included BSkyB, however no agreement between the parties has ever been reached.”
The DTH firm’s pursuit of a potential £8bn deal spooked investors in the company today, helping it top the FTSE 100 fallers board with a drop of more than 2% or 20.75p to 869.25p.
Share dilution risk in short-term
Analysts at Investec Securities warned that Sky Italia and Sky Deutschland produced weaker margins and returns than BSkyB, and so might dilute the UK company’s share price in the short-term.
However, they added that over the longer term the deal was “sensible” because it added around eight million subscribers to the enlarged business, offered savings, and gave the business more firepower to bid for sports rights.
Broker UBS added the deal would create a stronger business that could bid for pan-European rights and make more original programming.
However, UBS cautioned “there could be mixed investor reaction near-term until the potential deal structure and terms become clear”.
One factor that could affect the value of Sky Italia is whether it wins the rights to show the top-flight football league, Serie A, next year, which will be decided over the next few weeks.
