Barely six months after he was named CEO of 21st Century Fox, James Murdoch is heading back to the chairman’s post at pan-European pay TV provider Sky, spurring speculation that Fox is eyeing a run at buying up the 61% of Sky that it does not already own. As biz-watchers absorbed the news of Murdoch’s appointment, the consensus on the question of Fox’s interest in consolidating Sky seems to be “when,” not “if,” but the “when” may not be any time soon.
News of Murdoch’s ascent to chairman of London-based Sky, effective in April, came as a surprise to U.K. observers on Friday, announced as the satellite-TV giant announced strong earnings for the second half of 2015. Sky CEO Jeremy Darroch told investors that the independent members of Sky’s board looked at internal and external candidates to succeed Nick Ferguson but determined that Murdoch was the best choice thanks to his intimate knowledge of Sky in particular and the international pay TV landscape in general.
“It doesn’t signal anything that’s different,” Darroch said Friday during the earnings presentation. “He’s passionate about the business. He’s involved in the world of media on an international and global stage.”
Murdoch has been on the board of Sky and its BSkyB predecessor since 2003, and he served as CEO from 2003-2007 and chairman from 2007-2012. His resignation as chairman came amid the political firestorm in the U.K. over the phone-hacking scandal that erupted at News Corp.’s U.K. newspapers in 2011. Moreover, Fox had to abandon its $12 billion bid to acquire the remainder of what was then BSkyB because of the outrage in Britain over the actions of journalists at the News International division that Murdoch ran at the time.
But nearly four years later, the investigations and public calls for Murdoch’s head have finally died down. His promotion to CEO of 21st Century Fox last summer was met with virtually no resistance from investors.
In the meantime, BSkyB has been transformed into Sky through its 2014 merger with Fox-owned Sky Deutschland and Sky Italia, a deal that Murdoch spearheaded from his previous perch as Fox’s deputy COO. The merged entity has clear momentum based on the earnings report, which noted that Sky saw its biggest second-quarter subscriber growth in 10 years in the U.K. and Ireland with a gain of 205,000, driving a group-wide increase of 337,000.
Fox is still sitting on a pile of cash that was horded away when it was preparing for the BSkyB takeover. And the sale of its Sky Deutschland and Sky Italia stakes to BSkyB brought in a $9 billion-plus windfall. The conglom has spent some of its former BSkyB warchest during the past two years on stock buybacks, on the recent formation of National Geographic Partners and the acquisition of India’s MAA Television Network through its Star India unit. But it still has enough cash on hand ($5.8 billion at last disclosure) to be opportunistic in dealmaking and flexible in arranging financing options.
Murdoch’s own statements about Sky since he became CEO of Fox have fueled the belief that Fox is planning to pounce again, eventually. But if such a move were imminent, Murdoch’s appointment as Sky chairman would be ill-timed. The conflict in his dual roles at Fox and Sky would force him onto the sidelines of management decisions as far as Sky is concerned.
More likely, observers on both sides of the pond noted, Murdoch will be a steady hand on the tiller at Sky for at least another year or two before Fox takes any concrete steps toward a new buyout offer. In that scenario, the chairman’s post is the catbird’s seat for Murdoch. He’s also said to have great confidence in Sky’s Darroch, who has steered the integration of the Sky shingles during the past 18 months. Darroch cited the importance that “continuity” on the Sky board has made in the company’s growth to date.
Analysts who cover Sky seemed more intrigued with the company’s churn rates, broadband subscriber gains and set-top box upgrade plans than the Murdoch news. A research note from Citi Media noted that “on the negative side, the retirement of the current chairman Nick Ferguson and the announcement of James Murdoch as his replacement may raise some questions about the balance of the board between independents/non-independents.” But it still rated the stock as a buy.
And so did investors. Sky shares were up nearly 4% at the close of trading Friday on the London Stock exchange.