Murdoch Takeover Target BSkyB Boosts Third-Quarter Profit on Client Growth

British Sky Broadcasting Group Plc (BSY), which rejected a bid by Rupert Murdoch’s News Corp. for full ownership in June, said fiscal third-quarter operating profit rose 5.2 percent as the pay-TV company added more clients.

Earnings before interest, taxes, depreciation and amortization rose to 344 million pounds ($575 million) in the three months through March, the Isleworth, England-based company said in a statement today. BSkyB, the U.K.’s biggest pay-TV operator, added 51,000 net new subscribers in the quarter, ahead of an estimate for 45,000 additions by Jefferies International.

News Corp. is waiting for full government approval for the bid from U.K. culture secretary Jeremy Hunt after agreeing to spin off BSkyB’s 24-hour Sky News channel to address media concentration concerns and avoid a longer review. BSkyB reached its target of 10 million subscribers last year, prompting News Corp. (NWSA) to make a 7.8 billion-pound bid for the 61 percent it doesn’t already own.

“Sky’s ability to throw off the cash is probably the key thing that the bid price is going to come in on,” Nick Bell, an analyst at Jefferies International in London. The “focus continues to remain on developments with the News Corp. bid, rather than financials,” he said.

The company’s shares were little changed at 835 pence at 8:29 a.m. in London trading. BSkyB has gained 13 percent so far this year, meaning News Corp. may have to raise its offer to win shareholder approval.

Rejected Bid

BSkyB last year spurned News Corp 700 pence-a-share bid and said it wanted at least 800 pence.

“We expect a decision from Jeremy Hunt imminently and then expect News Corp. to agree a price of up to 850 pence,” Numis Securities analysts Lorna Tilbian, Paul Richards and Dominic Buch said in a note today.

The average third-quarter Ebitda estimate of analysts surveyed by Bloomberg was for 344 million pounds. Sales rose 13 percent to 1.65 billion pounds, meeting analyst estimates for the same figure.

The broadcaster has sought to attract customers to its high-definition services after signing exclusive content deals.

The deal would be News Corp.’s biggest and also still needs approval from BSkyB shareholders including Odey Asset Management, who want the U.S. company to raise the bid.

“I don’t see any reason at all why Sky News should not go on and prosper in the future as it does today,” Chief Executive Officer Jeremy Darroch said today on a conference call.

Rising Cash Flow

BSkyB had expenses of 12 million pounds related to the News Corp. bid in the quarter. Free cash flow climbed 60 percent to 615 million pounds, while average revenue per user rose 8 percent to 544 pounds.

“We’re moving into a phase of more broadly-based growth,” Darroch said. BSkyB is “selling more products into the base.”

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 leading industry efforts to get readers to pay for online content amid losses at the U.K. newspapers. He introduced online paywalls at the Times and News of The World newspapers 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)

Murdoch’s BSkyB deal has been opposed by a group of U.K. media companies, including owners of the Guardian, Daily Mail and Telegraph newspapers, which say the takeover would have ‘serious and far-reaching consequences for media plurality.”

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

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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