In a dramatic turn of events, media mogul Rupert Murdoch has withdrawn News Corporation’s £7.8bn bid to acquire the 61% it does not already own in satellite broadcaster BSkyB.
In a statement, News Corp deputy chairman Chase Carey said: “We believed…
In a dramatic turn of events, media mogul Rupert Murdoch has withdrawn News Corporation’s £7.8bn bid to acquire the 61% it does not already own in satellite broadcaster BSkyB.
In a statement, News Corp deputy chairman Chase Carey said: “We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate. News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it.”
Two days later, on 15 July, Rebekah Brooks resigned as chief executive of News International, the British newspaper publisher owned by News Corp, amid mounting pressure over the phone hacking scandal. She has been replaced by Tom Mockridge, the chief executive of News Corp’s Italian satellite broadcasting arm, Sky Italia.
In just a couple of weeks, News Corp went from being closer than ever to taking full control of BSkyB, to giving up on the deal. This downward spiral has been illustrated by BSkyB’s share price, which went from 847p on 30 June 2011 to 683.5p on 13 July 2011. News Corp had tabled its approach for the BSkyB stake at 700p in June 2010, valuing the company at about £12bn.
At the end of June this year, many had expected the BSkyB acquisition to be approved sometime during the summer or at the latest in September, after Culture Secretary Jeremy Hunt approved News Corp’s proposal to spin off subsidiary Sky News, therefore paving the way for its takeover of the satellite broadcaster.
This undertaking was aimed at allaying plurality fears in the UK, where News Corp already owns two of the largest newspapers: The Times and The Sun.
In early July, revelations started emerging in the Guardian newspaper about the widespread use of phone hacking techniques by the News Corp-owned News of the World Sunday newspaper. The phones of thousands of persons have allegedly been targeted including that of three murdered schoolgirls.
Following growing political and commercial pressure, News International chairman and Rupert Murdoch’s son James Murdoch announced that the 10 July Sunday issue of the News of the World would be the last edition of the paper.
The following day, News Corp withdrew its offer to hive off Sky News as a separate company and said it was now ready to engage with the Competition Commission instead.
The move forced the hand of Hunt, who had faced increasing pressure from the opposition Labour party to refer the deal to the regulator, as fresh allegations about the scandal kept surfacing. But this also meant News Corp having to wait at least a year, and not a few weeks as previously hoped, for the transaction to be completed.
Meanwhile, the company unveiled a plan to buy back US$5bn worth of its own shares in the face of a collapsing share price, which saw News Corp shares dropping from US$18.54 on 5 July to US$15.97 on 12 July.
The move has been seen as an attempt to appease investors, as buyback scheme boosts the share price, increasing the value of assets held by shareholders.
News Corp was expected to use US$3.2bn of the cash set aside for the BSkyB acquisition to increase its buyback programme from US$1.8bn to US$5bn, while the deal was still in limbo.
But the following day, on 13 July, as British Prime Minister David Cameron was announcing details of the independent inquiry into the phone hacking scandal, News Corp decided to withdraw its offer for BSkyB.
In a statement, News Corp however said that it “reserves the right to announce an offer or possible offer or make or participate in an offer or possible offer for BSkyB.” Deutsche Bank and JP Morgan Cazenove were mentioned in the statement as financial advisers to News Corp on the bid for BSkyB.
That same day, former Prime Minister Gordon Brown, who claimed to have also been the target of illegal methods, told MPs that the regulator Ofcom would apply the ‘fit and proper’ test to the remaining holdings of News Corp in BSkyB, and not only the 61% it was looking to acquire.
But the regulator rejected Mr Brown’s assertion, saying that “Ofcom has an ongoing duty to ensure that all our licensees are fit and proper. This is a continual and ongoing assessment.”
After becoming the focus for heavy criticism of the company’s journalistic practices, Rebekah Brooks gave her resignation on 15 July. Rupert Murdoch had previously refused to accept her resignation but eventually gave in under pressure.
In an email to staff, Brooks wrote: “My desire to remain on the bridge has made me a focal point of the debate. This is now detracting attention from all our honest endeavours to fix the problems of the past.”
She added that he resignation would allow her time to give her full co-operation to the police investigation into phone hacking and police bribes, the judge-led inquiry into the scandal, and her appearance before the Commons Culture Media and Sport Committee on 19 July.
Rupert and James Murdoch have also finally agreed to give evidence to the Commons Culture, Media and Sport Committee, having previously said they were unavailable to attend.
Meanwhile, the FBI has reportedly opened an inquiry into claims that News Corp journalists sought to hack the phones of the victims of the 9/11 attacks. With Brooks out of the way, some speculate that James Murdoch may now become the main focus for criticism.
For BSkyB and News Corp, it is difficult to say if the recent events will adversely affect their operations. News Corp had been a major shareholder in the satellite broadcaster for more than 20 years before it decided to submit a bid in June last year.
It was hoping to tap into BSkyB’s strong cash generation and complement its global empire of newspapers and satellites stations, which include Fox News. As a subscription-based business, Sky was attractive to News Corp as way to reduce reliance on the volatile advertising cycle, while the move also offered a greater geographic spread away from its US interests.
Before News Corp decided to drop its bid for BSkyB, research firm Enders Analysis had estimated that: “After five flat years that have seen major opex investment in multi-product growth, 2011 will see a jump of about £200 million (24% increase) in operating profits as the investments wash through and BSkyB embarks on a high growth trajectory expected to yield a further increase in profits in the order of £650m between 2011 and 2015.”
It added that even for the world’s largest media conglomerate, BSkyB would have been a major acquisition. It calculated, at the time, that BSkyB would make up no less than 25% of News Corp annual revenues and approaching 30% of its operating income.
In an interview with SatelliteFinance, Toby Syfret, an analyst at Enders Analysis, said: “There is no obvious reason why News Corp would not try, in the future, to bid again for BSkyB. They have been a major shareholder for a long time now and know the company very well.
“As the internet age develops, News Corp also sees this acquisition as a strategic value because it needs to compete with global media and telecom players.”
But he concluded saying a new bidding process may not happen before next year or beyond, depending on the outcome of the present investigation and other strategic decisions the company may make regarding its assets.
