Murdoch Rule of Europe Sky Complete as Ambition Pays Off

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Rupert Murdoch and his son James have spent years cobbling together a pay-TV empire stretching from Manchester to Munich to Milan, but the family’s ambition of bringing it all under one roof foundered after a 2011 phone-hacking scandal that tarnished the Murdoch name. Today the deal was done -- with a non-Murdoch at the helm.

Jeremy Darroch, 52, will oversee a $9 billion transaction uniting British Sky Broadcasting Group Plc with Sky Italia and Sky Deutschland AG. BSkyB will buy the shares from another Murdoch company, 21st Century Fox Inc. The purchase will create a media powerhouse that beams TV programs via cable and satellite to 20 million subscribers in five European countries.

Today’s purchase is the culmination of years of deals to build the company, which doesn’t yet have an official name but that many in the industry are calling Sky Europe. In 2003, the Murdochs assembled satellite assets to build Sky Italia. Then beginning in 2008 the family made a series of investments that became Sky Deutschland.

“There’s so much public evidence of the long ambition to unite the Skys,” said Claudio Aspesi, a media analyst at Sanford C. Bernstein in London. “James right now is looking brilliant, because he can point to success in creating value. He’s bringing all the cash out of Europe and monetizing investments some people had been skeptical about.”

James Departure

The big question is whether the Murdochs can achieve a long-standing goal of taking full ownership of BSkyB. In 2010, the family made a 7.8 billion-pound ($13.2 billion) bid for the 61 percent of the company it doesn’t own. That plan, though, fell apart after the phone-hacking scandal.

In 2011, The Guardian reported that Murdoch’s U.K. Sunday tabloid News of the World had hacked into the mobile phone of a murdered school girl. The ensuing furor forced Murdoch to shutter the News of the World and put the BSkyB plan on hold, while James Murdoch decamped for New York. He now serves as co-chief operating officer at Fox, the film and broadcast unit of Murdoch’s former News Corp., which split last year.

The senior Murdoch “knows he’s going to be unable to buy BSkyB in the foreseeable future after the difficulties last time around,” said Roddy Davidson, an analyst at Westhouse Securities in London. Today’s transaction “doesn’t preclude him from trying to acquire BSkyB and the European assets once they’ve been brought together.”

Time Warner

By selling Sky Italia and its 57 percent stake in Sky Deutschland, Fox gets cash that it could use to increase the $80 billion offer Murdoch made for Time Warner Inc. in June. Though Time Warner rejected that bid, Fox is willing to raise its bid above the current $85 per share, a person familiar with the matter has said. Analysts have speculated that the Murdochs could also sell their 39 percent stake in the expanded BSkyB to raise even more cash for Time Warner.

Fox declined to comment on whether it might sell its BSkyB shares. In a statement, Fox said it plans to disclose details of a new share-buyback authorization next month.

Fox rose 0.3 percent to $32.81 at the close in New York. Time Warner climbed 1.2 percent to $84.99. Sky Deutschland added 1.4 percent to close at 6.75 euros in Frankfurt. BSkyB dropped 5.5 percent to 874.5 pence in London.

“The deal is great for Mr. Murdoch since now he can keep on pursuing the Time Warner deal and fulfill his old dream of becoming the single entrepreneur in the global media industry with the largest content breadth and depth,” said Carlo Alberto Carnevale Maffe, a business professor at Bocconi University in Milan.

Youngest CEO

Uniting Sky Europe was always part of the Murdochs’ plan for BSkyB, said Claire Enders, founder of Enders Analysis in London. The younger Murdoch hired Darroch from U.K. electronics retailer Dixon’s to work as BSkyB’s finance chief in 2004. James had just taken over BSkyB, and at the age of 30 was the youngest person to head a top-100 British company. In 2007, Murdoch promoted Darroch to chief executive officer of BSkyB.

“The goal was to take over the balance of BSkyB and roll it into a vehicle that would contain Italia and the Deutschland stake,” Enders said. “This was how James was going to keep Darroch interested in the job -- with more territories, responsibilities and complexities.”

Growing Threat

The Sky Europe deal promotes Darroch to the top of a pan-European pay-TV empire, rivaling John Malone’s European cable powerhouse Liberty Global Plc. Just as important, it defuses a growing threat from BT Group Plc. The phone carrier has stepped up competition by offering free sports channels to broadband subscribers and winning the rights to major sporting events in recent years -- a strategy similar to the one Rupert Murdoch pursued when he founded BSkyB in 1990.

Darroch’s team will include Brian Sullivan, a 52-year-old American who runs Sky Deutschland. The veteran of Viacom Inc.’s Showtime Networks started in the marketing department at BSkyB in 1996 and and became Sky Deutschland’s CEO in 2010. Also working with Darroch will be Sky Italia chief Andrea Zappia, 50, an Italian who took over in 2011 and previously held various jobs at BSkyB and Sky Italia.

“The management teams at the Skys know each other well,” Darroch said on today’s call. “Geographically we are more diverse now, but these assets are doing similar things in all their markets, and we have a common ethos.”