Media

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Half of Sky’s outside investors oppose the appointment of James Murdoch as chairman of the British pay-TV broadcaster. That’s because Murdoch blatantly fails the independence test required of chairs of U.K. companies. He’s also CEO of 21st Century Fox, the U.S. movie and TV business which owns 39 percent of Sky and may one day want to bid for the rest. 

Sky has a remedy for this: a body of unaffiliated directors who could make up an independent board for the purposes of weighing any bid. But the group will have a weak hand.

Sky Fall
Shares have performed worse than Europe's media index
Source: Bloomberg

If a firm proposal materialized, Sky deputy chairman Martin Gilbert would lead negotiations with Murdoch on price and his sub-board would make a recommendation to shareholders on whatever offer emerged. He'd be supported by Sky’s senior independent director, Andrew Sukawaty, and three other independent non-executives -- as well as the CEO and CFO.

The grouping should be in a better position than shareholders to form a view on whether any offer to buy out Sky is acceptable, given their inside knowledge. However, it is relatively short on media expertise aside from that of the two Sky execs. 

Murdoch’s intimate familiarity with Sky -- from being current chairman, former chairman and former CEO -- means his understanding of the business and its value would be pretty much as good as Gilbert's board from the get-go. That voids the information advantage the targets usually have in bid situations.

True, Murdoch wouldn’t be party to the Gilbert-led discussion about defense strategies, such as trying to find alternative deals. But those deliberations risk being academic given that Fox's 39 percent stake is a deterrent to counterbidders.

Plus Murdoch would know precisely what financial and strategic benefits Fox could wring from Sky to fund a generous offer. These may be slight, but Sky’s directors can only guess at them.

This tricky dynamic applies whether Murdoch is leading the board or not, and to an extent even if he was off the board thanks to his past acquaintance with the business. 

Sky's independent directors have one trump card. They can simply withhold their recommendation for any offer they don't like. That would force Murdoch to make a hostile offer directly to Sky shareholders. And they're in no mood to give him an easy ride.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Chris Hughes in London at chughes89@bloomberg.net
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net