Broadcasting giant BSkyB has suffered a near £350m hit after selling a 10.4% stake in ITV and abandoning its legal battle to prevent the divestment.
Sky offloaded 404 million shares at 48.5p each – totalling £196m – after the January decision by the…
Broadcasting giant BSkyB has suffered a near £350m hit after selling a 10.4% stake in ITV and abandoning its legal battle to prevent the divestment.
Sky offloaded 404 million shares at 48.5p each – totalling £196m – after the January decision by the Court of Appeal to uphold the Government ruling that it must sell down its 17.9% stake in the terrestrial broadcaster.
Morgan Stanley placed the shares. The identity of the buyers was not revealed, but they are believed to be large institutional investors.
The group originally spent £940m on the stake in November 2006, snapping up the shares at 135p each – a move that halted plans by the then-named NTL, since rebranded Virgin Media, to take over ITV.
Sky fought a three-year battle to keep the controversial holding, but conceded defeat after reportedly being told by legal experts that its chances of winning an appeal were slim.
The group retains a 7.49% stake in ITV – the maximum it is allowed to hold following a Competition Commission judgment that it must reduce its stake to below 7.5% due to concerns about undue influence over ITV.
Sky’s original shares raid took the market by surprise and infuriated major NTL shareholder Sir Richard Branson. However, Sky has always maintained it intended to be a long-term investor in ITV and sought to keep the stake through three appeals processes.
The Commission’s ruling came at a bad time for Sky, with ITV shares having slumped to historic all-time lows since it first acquired the holding, even falling below 20p at one stage.
Since November, the share price has marginally recovered to hover just over the 50p mark on a consistent basis.
Sky has already written down the value of its stake in ITV by around £800m and it is expected the price achieved for the shares will see it book a small exceptional gain in full-year accounts.
It said after the sale last night: “Sky intends to retain its residual 7.5% investment in ITV for the medium-term and to remain a committed shareholder of ITV.”
(subhead) ….but triumphs in EDS court case
BSkyB has won a court ruling against the IT supplier Electronic Data Systems (EDS), which it accused of lying in a sales pitch for a £50m customer service upgrade.
Damages will be awarded at a later date, and BSkyB has stated that it expects EDS, which was taken over by American IT giant Hewlett-Packard in 2008, to pay “at least £200m” in damages.
BSkyB took legal action against EDS in 2004 for deceit, negligent misrepresentation and breach of contract. The case stems from a contract the company signed with EDS to create an advanced customer service system in 2000.
The contract was terminated in March 2002 following a series of delays and budgetary overruns on the part of EDS. BSkyB completed the work itself at a cost of £265m.
Mr Justice Ramsey of the Technology and Construction Court in London accepted BSkyB’s assertion that EDS had falsely misrepresented its ability to complete the task in its sales pitch for the contract.
The main allegation upheld was based on the fraudulence of EDS’ argument that it had made a proper analysis of the amount of time needed to complete the initial delivery and go-live of Sky’s contact centre; and the opinion it could and would deliver the project within the timescales referred to in their responses to Sky.
The judge found that EDS had not made sufficient analysis of what would be required to turn the project around in the stated target of 18 months.
The other allegation where EDS was found culpable was a claim for negligent misrepresentation based on EDS’ mid-project claim that it had developed an achievable plan for project completion that was based on proper analysis and re-planning.
Seven more BSkyB claims regarding EDS resources, risk profiles and methodologies failed due to the Court not accepting them as examples of repudiatory breaches.
Hewlett Packard has said that it will appeal the verdict. It stated: “We are pleased the Court dismissed the majority of the allegations made. While we accept that the contract was problematic, HP strongly maintains EDS did nothing to deceive BSkyB. HP will be seeking permission to appeal.”
The case has major implications for relations between IT and technology suppliers and their clients.
A statement from the law firm Bird&Bird said: “The decision reminds suppliers of the extent to which they can be held accountable for statements made in the pre-contract phase of a project. It is certain that many suppliers will use this decision to galvanise further action on the risk management, training and communications aspects of their bidding and sales processes. The finding of negligent misrepresentation prior to the mid-project settlement agreement emphasises the need for suppliers to take care when making proposals to a customer to rebaseline a failing project.”
The court ruling boosted an already good week for BSkyB, which reported first half 2009/2010 net profits of £256m, a 51% increase on the £156m generated during the equivalent time last year.
Revenue rose by 10.5% to £2.87bn, though operating profit before exceptional costs only grew by 4% to £402m, a lower figure than the £413m anticipated by industry analysts.
This slower growth was partly due to the continued intense investment in marketing and supply for the company’s high definition services. Net incremental investment in this area was estimated to be £70m for the half year.
172,000 new pay-TV subscribers were added during this period, but the real gain was in HD, where 482,000 customers took up the service, a 156% increase year on year.
BSkyB CEO Jeremy Darroch said: “While the economic outlook remains uncertain, we enter 2010 in a good position and we will continue to focus on a consistent set of priorities.
“In addition to customer growth and take-up of additional products, we will seek to extend and build on our leadership position in high definition and seek to grow our share in home communications. We will continue to invest sensibly where we see long-term advantage and stay disciplined on costs.”
