BSkyB has agreed to pay some £5.3 billion to buy Rupert Murdoch’s pay-TV companies in Germany and Italy, taking its hunt for growth into Europe by creating a media powerhouse with 20 million customers.
The satellite broadcaster, in which Murdoch’s 21st Century Fox is also the largest single shareholder, will pay for the deal using cash, debt, its stake in a TV channel and a placing of shares that represents around 10 per cent of its issued share capital.
The deal adds to a flurry of consolidation in the global media sector as traditional entertainment companies seek to bulk up to compete against more nimble internet rivals.
Fox is expected to use the proceeds to fuel its pursuit of Time Warner, which recently rejected Fox’s initial $80 billion (£47bn) bid.
BSkyB had flagged a possible deal to take control of Sky Deutschland and Sky Italia in May. The price announced yesterday was slightly lower than expected by some analysts and the cost and revenue benefits higher.
Conor O’Shea, an analyst at Kepler Capital Markets, said: “It is a bit of a step into the unknown for Sky. For the first time, it will go from UK-focused to European and be asked to prove that it can add value from being larger.”
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, noted: “Sky is clearly taking the strategic view that pay-TV, already ingrained in the US culture, will become prevalent in Europe.
“As such, it would be well positioned to benefit from this growth, given a customer base of the newly enlarged group approaching 20 million customers as a starting point.”
BSkyB dominates British pay-TV, offering its premium sports, movies and US drama programming to ten million-plus homes. Of 97 million households in the five countries it wants to target, 66 million are yet to take pay-TV.
Fox owns 100 per cent of Sky Italia, 57 per cent of Sky Deutschland and 39 per cent of BSkyB. BSkyB will pay £2.45bn for Sky Italia and £2.9bn for Fox’s 57 per cent stake in Sky Deutschland. Under German takeover law, BSkyB also has to make an offer for the minority investors in Sky Deutschland, but with only a small premium on the table, analysts doubt that many will sell.
The overall price for the deal would rise to around £7bn if German investors did sell out.
BSkyB’s deal is a bet that it can squeeze out costs on everything from set-top boxes to broadcasting rights. It aims to reap £200 million of annual cost savings by the end of the second financial year, with revenue synergies coming after that.
It will compete in pay-TV with John Malone’s Liberty Global, which is available in 12 European markets and boasts 23 million customers in the region.
Analysts said the deal could also make BSkyB an attractive takeover target further down the line for a group such as Vodafone, which has been buying fixed-line assets in Europe to bolster its mobile offering.
Sky Deutschland is growing strongly in terms of customer additions and revenue, helped by the appeal of its domestic and European football matches, but the percentage of those willing to pay for TV in Germany remains low – below 20 per cent.