BSkyB seeks showdown

Published on Thursday 21 February 2008 20:32

BSKYB 595p +13p KINGFISHER 135p +3.5p

IF THE legal row about BSkyB's controversial stake in ITV was being run on Sky Sports, the satellite broadcaster might well bill it as "Showdown Sunday". And there's no shortage of City analysts out there to provide "the Competition Commission's got to hit the (regulatory] target from there" Sky Sports' school of punditry.

More seriously, it looks like BSkyB genuinely believes that it has a legal case for overturning the commission's decision that the company must cut its stake in ITV from 17.9 per cent to below 7.5 per cent.

Difficult to see why. What reason could former BSkyB boss James Murdoch (son of Rupert, News Corp boss and Sky's biggest shareholder) have for taking the stake last November if it was not to queer a rival's pitch by blocking cable group NTL's plan to buy ITV?

And if that was the case, how can Sky claim straight-faced that its investment does not prevent Sky "from pursuing an independent, competitive strategy". What, like agreeing a takeover?

It was a gift for Sir Richard Branson, whose Virgin Media subsequently subsumed NTL, to do his champion-of-the-people schtick against a voracious Sky and its backers.

Despite this, the pay-broadcaster yesterday launched its legal appeal against the commission's decision, with the Competition Appeal Tribunal.

Jeremy Darroch, who has succeeded Murdoch as BSkyB's chief executive, says competition in the sector remains vigorous and that the regulator has failed to meet the burden of proof needed to justify its conclusions.

"It has built its case on a series of implausible hypotheses and has recommended an arbitrary remedy for a non-existent problem," thunders Darroch.

"And after the break...", as Sky Sports might say. The tribunal has the power to throw out part or all of the commission's previous findings and send it back to think again.

It is difficult seeing it doing so. It looks, with or without voting rights, that BSkyB currently has a major stake in a rival to influence the TV sector's layout. As such, most laymen would think that it is an open-and-shut case of hobbling competition.

The stake looks a classic case of the Mafia dictum of keeping your friends close and your enemies closer.

It is possible, of course, that Sky is just being pragmatic here, looking for a score-draw so to speak.

The group is currently looking at a potential loss of about 250 million on the price it paid for the ITV holding, 135p, and last night's closing price of 71.80p.

Sky might be after a partial victory at the tribunal, the contentious ITV stake perhaps having to be reduced, but not by such an arguably draconian amount.

That way Sky might not have the heft it wanted at ITV going forward, but would at least have cut its financial losses on the ill-starred venture. After all, 250m is worth a lot of satellite-dish subscribers.

NEOLOGISMS alert. New Kingfisher boss Ian Cheshire made his bow in this ever-growing business area with yesterday's mixed-bag trading update from the DIY retailer. We have had business revolutions. New company bosses also regularly trot out the line about likely change being about evolution, not revolution. Familiarity breeds content.

Deviating a bit, Cheshire has come up with "aggressive evolution", which conjures up images of a nice tabby cat that could become nasty if provoked.

The new boss of the B&Q and Castorama-owning chain, following Gerry Murphy's abrupt departure last November from the world of electric drills and barbecue sets, also said there would be "no sacred cows", but he felt Kingfisher had a good set of businesses. In other words, like all shrewd chief execs he is allowing himself total room for future manoeuvre while saying nothing to frighten the horses too early.

The company should feel good about itself but obviously not too good about itself, post-Murphy, was the subtext.

In all truth, B&Q's 1.7 per cent slip in sales in the fourth quarter of Kingfisher's latest trading year is far from bad in a high street climate where the chill is increasingly setting in, interest rate cuts or no interest rate cuts.

Castorama's performance in France, with sales up 3 per cent, was positively upbeat against the jittery consumer backcloth.

Use of capital is king in this climate, says the new man.

As such, for Kingfisher, it is likely to be less a DIY march to the gates of Moscow, as under Murphy, but rather careful calibration under Cheshire, for the foreseeable future.