News Corp. Wins Control of German Division for $464 Million

Rupert Murdoch’s News Corp. increased its stake in German pay-TV company Sky Deutschland AG to a majority, 18 months after giving up a bid to fully acquire British Sky Broadcasting Group Plc.

News Corp., which started investing in Sky Deutschland five year ago, raised its holding to 54.5 percent from 49.9 percent by buying new Sky shares for 347.4 million euros ($464 million). The deal is part of a 1 billion-euro financing package Sky agreed with News Corp. and lenders to help the pay-TV operator win more customers, Sky Chief Financial Officer Steven Tomsic said on a conference call today.

Sky rose as much as 4.9 percent in Frankfurt trading. The stake increase shows that News Corp. hasn’t fully given up its ambition to create a pan-European broadcaster, even though a phone-hacking scandal at its British newspaper unit prompted the New York-based company to drop its 7.8 billion-pound ($12.5 billion) bid for the remainder of BSkyB in July 2011. In Europe, Sky also operates in Italy and Austria.

“The market had long anticipated the second leg of equity financing,” said Conor O’Shea, a media analyst with Kepler Capital Markets in Paris. Speculation around a full News Corp. takeover will increase once the rights issue is complete, O’Shea said.

Sky will sell 77.9 million new shares at 4.46 euros each to News Corp. unit News Adelaide, Munich-based Sky said. After the stock sale, Sky will hold a rights issue for all shareholders to raise an additional 90.6 million euros. The subscription price will be set “close to” and not more than 4.46 euros a share.

Best Performers

Sky rose 1.9 percent to to 4.69 euros at the close in Frankfurt. The stock was the best performer in the 27-company Bloomberg Europe 500 Media Index last year, having almost tripled. News Corp. declined less than 1 percent to $26.80 at the close in New York.

Sky agreed with banks led by JPMorgan Chase & Co. over 300 million-euro five-year credit facilities that are guaranteed by News Corp. Also in the syndicate are Bank of America Merrill Lynch, Citigroup Inc., Deutsche Bank AG and UniCredit SpA.

News Corp. also holds bonds that can be converted into 53.9 million Sky shares, equivalent to a 6.9 percent stake, at a price of 3.053 euros a share.

“News Corp.’s continued investment underscores the value we see in Sky Deutschland and the significant market opportunities it faces, and reflects our confidence in its management team and their strategies for growth,” News Corp. Chief Operating Officer Chase Carey said in a statement.

Soccer Rights

Sky Chief Executive Officer Brian Sullivan is hoping to attract higher-paying subscribers with higher-resolution broadcasts and an expanded lineup of shows to help Sky reach its profit target. The company’s number of subscribers jumped 12 percent to 3.36 million last year, he said on a conference call. Sky also confirmed today it will be profitable, based on earnings before interest, taxes, depreciation and amortization, for the full year 2013.

The company has concluded partnership with Liberty Global Inc.’s German cable provider Unitymedia KabelBW and Kabel Deutschland Holding AG to reach more customers. This month, it agreed with Deutsche Telekom AG to sell Sky channels including Germany’s Bundesliga soccer matches and UEFA Champions League games to the phone company’s Entertain TV clients.

News Corp. will guarantee half of the annual license fee Sky has to pay to be able to show matches of the the Bundesliga soccer league through the 2016-2017 season, Sky said. Sky last year beat rivals including Deutsche Telekom over the rights, paying 485.7 million euros per season.

Tax Losses

The increase to majority control may also affect how News Corp. can treat some tax losses at Sky. Sky said in November that it was told by tax authorities that it may retain previous tax losses in the event of a change in its ownership structure. The tax loss carried forward totaled 2.3 billion euros on Sept. 30, of which 2.1 billion euros were from the German operating business.

The amount to be retained won’t be known for another 12 months, when Sky files financial reports for 2013, CFO Tomsic said today.

Bank of America Merrill Lynch advised Sky on the deal.

Before it's here, it's on the Bloomberg Terminal.