The approval Thursday by British regulators of News Corp.’s acquisition of the 61% of satcaster BSkyB it doesn’t own appears to have put the media giant back in Wall Street’s good graces.
Shares traded up 35¢ to $18.49, as investors were pleased to see the deal moving along faster than had been anticipated.
With regulatory approval in hand, News Corp. now has to agree a final sale price with BSkyB’s shareholders. Its initial offer in June was $11.40 per share but it will have to rethink that after BSkyB’s share price jumped to $13.40 following news of the deal. Local analysts suggest shareholders may be looking for something in the region of $14.65.
Two weeks ago, Wall Street was not quite as enamored with News Corp.’s $675 million buyout of production company Shine Group, which promises to bring News Corp. chairman Rupert Murdoch’s daughter and Shine topper Elisabeth back into the family business. Critics said the deal smacked of family favoritism and was not shareholder friendly. News Corp. stock fell by nearly a dollar on the news.
“We wrote at the time that the deal would likely return the company to the penalty box and restrain its multiple expansion for the near future,” Nomura media analyst Michael Nathanson said Thursday. “However, the earlier than expected completion of a BSkyB deal should allow the company an early exit from the penalty box, in our view.”
BSkyB should boost earnings, not dilute them, and allow for higher financial estimates on a pro-forma basis for 2012, Nathanson said.
The condition that helped win regulatory approval the buyout, which had been valued at about $13 billion, was agreeing to spin off Sky News into a new company. Thursday’s announcement will be followed by a 15-day period for public comment on the agreement.
The complex deal, certain to attract widespread criticism from rivals and commentators worried about the concentration of so much media power in one company, involves setting up a new firm, NewsCo.
News Corp. will license the Sky News brand to the new operation for seven years and funding will be guaranteed for a decade.
The deal will leave News Corp. with a 39.1% stake in NewsCo — equivalent to its current holding in BSkyB — with the other stockholders comprised of existing investors in the paybox.
NewsCo is to be run by an independent board and chairman, a stipulation designed to ensure that no member of the Murdoch family chairs the new entity. James Murdoch, who heads News Corp.’s activities in Europe and Asia, presently chairs both BSkyB and Sky News.
In a statement, News Corp. said it agreed to the Sky News spinoff to accelerate the regulatory approval process for the BSkyB takeover. While News Corp. “continues to believe that the proposed acquisition of the shares in BSkyB that it does not already own will not result in insufficient plurality for any audience in the U.K., it has submitted this comprehensive proposal in order to avoid a lengthy and costly review by the Competition Commission.”
U.K. Culture Secretary Jeremy Hunt said: “Informed by advice from the regulators, I believe that these will address concerns about media plurality should the proposed News Corp./BSkyB merger go ahead. The undertakings offered would ensure that shareholdings in Sky News would remain unchanged, and indeed offer it more independence from News Corp. than it currently has.”
Despite the fact that News Corp. is looking at paying more than the $13 billion initially offered for BSkyB, Murdoch knows that having full control of BSkyB is a huge financial win for his company.
News Corp. has spent millions on high-definition TV and broadband for BSkyB and wants to benefit from the paybox’s growing income. It is expected to announce pre-tax profits of almost $1.6 billion in the year to the end of June.
“Rupert Murdoch would have sold his granny to get the rest of BSkyB,” former Sunday Times editor and former Sky topper Andrew Neil told the BBC. “It is worth billions to his balance sheet.”
Neil suggested the guarantees Murdoch has given the government were unlikely to stand the test of time.
“This gets Rupert through a difficult period. It is not the end of his connection to Sky News,” Neil said. “With Rupert the real negotiations begin once you’ve done the deal.”
However, media commentator Steve Hewlett disagreed with Neil and said it was an “elegant” arrangement that would be legally binding. “It is a proper structural remedy,” he said.