Murdoch's News Corp. May Have to Pay $17.4 Billion for Its BSkyB Purchase

Rupert Murdoch’s News Corp. (NWSA) may have to raise its bid for British Sky Broadcasting Plc to as much as 10.7 billion pounds ($17.4 billion) to win over the pay- television operator’s shareholders.

The New York-based company, which received preliminary approval for the deal from the U.K. today, has offered 700 pence a share for the 61 percent it doesn’t already own of BSkyB, Britain’s biggest pay-TV company. With BSkyB shares now trading at about 815 pence, News Corp. may have to raise its offer well above that level to win shareholder approval.

“If they are going to bid 750 to 800 pence, I don’t see a deal being done,” said David Stewart, Chief Executive Officer of Odey Asset Management in London, which owns about 3 percent of BSkyB. “We don’t really want to sell; we like the investment and we’re very comfortable with it.”

U.K. Culture Secretary Jeremy Hunt today approved News Corp.’s takeover plan after it offered to spin off Sky News, BSkyB’s 24-hour news channel, to address media concentration concerns. News Corp., which owns four of the largest newspapers in the U.K. including the Times and Sun, would hold 39.1 percent of Sky and be barred from raising its stake without government approval for 10 years. Hunt’s decision averts a long, antitrust review of the takeover plans.

News Corp., which made its initial bid in June, has said it would wait until it had regulatory approval before addressing investors’ concerns about the terms of the deal. BSkyB’s independent directors, who rejected the News Corp. offer as too little, had said they may accept an offer of at least 800 pence.

‘In a Hurry’

“The evidence that News Corp is in a hurry suggests that it may be willing to pay 900 pence to 1,000 pence to secure the deal quickly,” Citigroup Global Markets analysts including Thomas Singlehurst wrote in a note today.

News Corp.’s spokeswoman in London, Alice MacAndrew, declined to comment on whether it would raise its bid or on when and if a new offer would be made. “Any comment on price would be utterly inappropriate,” she said.

News Corp. shares rose as much as 4.3 percent, trading 3.5 percent higher at $17.97 as of 10:07 a.m. in New York.

Hunt today said a consultation period on News Corp.’s undertakings starts today and will expire on March 21. If after the consultation Hunt is satisfied that News Corp.’s Sky offer addresses media plurality concerns, he will accept it, he said.

Under a June agreement with BSkyB, News Corp. has up to two months after winning regulatory clearances to negotiate an agreed offer for the rest of the pay-TV operator. After that, News Corp. needs 70 percent of BSkyB shareholders to sign off on the deal, including the 39 percent it owns.

‘Grade-A Asset’

A successful offer level from News Corp. for BSkyB may “have to have a 9 in front of it,” or be at least about 10 percent more than today’s trading price, said Johnathan Barrett, an analyst at Singer Capital Markets in London. “The TV market is in good health, both in pay and advertising. BSkyB is a grade-A asset.”

BSkyb, based in Isleworth, England, has about 16,500 employees and 10 million U.K. customers for services that include sports, on-demand TV and high-end international content from networks such as Time Warner Inc.’s HBO.

The company posted a 26 percent jump in first-half earnings before interest, taxes and exceptional items to 520 million pounds as it added more broadband clients, beating analysts’ estimates. Sales rose 15 percent to 3.19 billion pounds.

For Rupert

The value of News Corp.’s current BSkyB holding has more than doubled since the London-based company’s initial public offering on Dec. 8, 1994.

For Rupert Murdoch, adding 100 percent of BSkyB to his stable of assets would expand a media empire that stretches from Australia and India to the U.S. From roots in Australia, News Corp. has built a group run by the 79-year-old Murdoch and his son James, 38.

News Corp.’s brands include the Fox TV networks and film studios, the Wall Street Journal newspaper and book publisher HarperCollins. In addition to BSkyB, News Corp. has invested in pay-TV broadcasters in Italy, Germany, and Asia.

BSkyB’s sales growth in the latest year outpaced that of its four bigger global rivals, DirectTV, Comcast Corp., Dish Network Corp. and Time Warner Cable Inc., Bloomberg data shows.

News Corp. will “get a cash-generative business, a great business,” said Nicholas Bell, an analyst at Jefferies International Ltd. “At 8 or 8.50 pounds, it’s about 19 times earnings, which seems fair.’

Bundling

A comparable deal may be the acquisition of Univision Communications Inc. by Broadcasting Media Partners Inc., completed in March 2007. Broadcasting Media paid $12.61 billion, or about 17.4 times earnings before interest, taxes, depreciation and amortization.

Bell said the News Corp. deal may involve a cash component of about 800 pence and a share in Sky News, whose value will need to be determined.

BSkyB may help Murdoch make News Corp.’s newspaper business more profitable by allowing him to bundle newspaper and pay-TV subscriptions and spread content over several media platforms. Murdoch is already leading the effort to get readers to pay for online content amid losses at the U.K. newspapers.

He’s introduced online paywalls at the Times and News of The World and removed all news content from Google Inc.’s search engine. He also introduced a paid-for iPad news publication called The Daily in tandem with Apple Inc. (AAPL)

News Corp.’s BSkyB bid may still face hurdles.

Protests

A group of U.K. media companies, including BT Group Plc, Guardian Media Group Plc, Associated Newspapers Ltd., Trinity Mirror Plc, Northcliffe Media Ltd., and Telegraph Media Group, said today that they may challenge Hunt’s decision.

It questioned the independence Sky News would have under the structure being proposed by News Corp.

“It has been well-documented by former Murdoch editors that arrangements of this kind, including those put in place to protect the independence of the Sunday Times and Times, have proved wholly ineffective,” the group said. “Smoke and mirrors will not protect media plurality. We shall be vigorously contesting this whitewash of a proposal during the consultation period, as well as examining all legal options.”

In London, a group wearing Rupert Murdoch and Hunt masks protested outside a hotel that’s today hosting a media conference the culture secretary and BSkyB officials were scheduled to attend.

Hunt, a Conservative party legislator, took over the BSkyB review in January from Business Secretary Vince Cable, a Liberal Democrat, who was removed from the probe after he was quoted as saying he had “declared war” on Murdoch.

The Sun, a News Corp.-owned newspaper, backed the Conservatives in the U.K.’s general election in May after previously supporting the opposition Labour Party.

To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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