Murdoch's screen test: The media mogul may have got his way with News Corp's takeover of BSkyB, but at what cost?

Published on Wednesday 2 March 2011 16:47

JEREMY Hunt's heart was racing as he told his advisers to send out word that he was prepared to strike a deal with media mogul Rupert Murdoch. The Culture Secretary knew his face would be splashed across the television and newspapers as his decision to allow Murdoch to mop up shares in BSkyB would allow him to build an empire whose income would dwarf any other media organisation in the country, including the BBC.

He had been warned to brace himself for the worst on Wednesday night as rumours began to spread about a statement the next morning. Even so, Hunt was taken aback by the violent backlash on Thursday morning as opposition MPs, unions and an alliance of rival media organisations unleashed a torrent of abuse, accusing him of a "whitewash" and "selling-out" the British public.

Hunt's team of negotiators in the Department for Culture, Media and Sport (DCMS) had hoped that the concession they secured from Murdoch would be enough to quell the storm around the takeover bid, which has swelled since News Corp tabled a 700p-per-share offer last summer for the 61 per cent of BSkyB it doesn't own.

Murdoch's organisation agreed to spin off Sky News into an independent listed company to avoid a lengthy competition inquiry. News Corp would retain a 39 per cent stake in the new firm while the remaining shares would be distributed among other BSkyB shareholders. Sky News would be funded for ten years by BSkyB and Murdoch would undertake not to increase his shareholding in the new company for the same length of time.

The government also pointed out that Sky News would have an independent non-executive chairman and a majority of independent non-executive directors.

But the rest of the media was deeply critical of Hunt's decision. Rival organisations, unions and opposition MPs have vowed to pursue every avenue to quash the deal, which they say would put too much of the market in the hands of one man.

An alliance of media groups, including BT, Guardian Media Group, Associated Newspapers, Trinity Mirror, Northcliffe Media and Telegraph Media Group, said it would examine "all legal options" to stop the deal going through.

"Smoke and mirrors will not protect media plurality in the UK from the overweening influence of News Corporation," a spokesman for the alliance said.

National Union of Journalists general secretary Jeremy Dear branded the deal "bad news for democracy and media plurality. The reverberations will be felt across the entire media and political landscape," he said.

As Hunt answered his critics in parliament during questions in the House of Commons, his name outside the safe walls of Westminster was being dragged through the mud as protesters gathered outside the culture department.

Labour slammed his deal-making with Murdoch as "grubby". "We know that David Cameron had lunch with James Murdoch in the middle of the process, Jeremy Hunt has changed his mind," shadow culture secretary Ivan Lewis said.

Critics of the deal say the whole process, since News Corp's initial bid in June to Thursday's decision, has been shambolic. Hunt was passed the poisoned chalice of negotiating with Murdoch's media empire, which also owns the Sun, The Times, the News Of The World and Sunday Times, in December after business secretary Vince Cable was filmed secretly boasting to what he thought was a constituent that he had "declared war" on Murdoch.

Opponents have until 21 March to state their case against the proposed deal while News Corp will also have to wrangle with the BSkyB board over the price. Despite the strength of feeling among rivals and opposition politicians, analysts warn Murdoch is likely to get his way - the only question now is how much he will be forced to stump up for the prize.

Steve Malcolm, analyst at Evolution Securities, said: "To all intents and purposes this looks like a 'done deal', which will be completed in a shorter than anticipated timeframe."

BSkyB's share price jumped 3 per cent to 823p on Thursday, well above News Corp's initial 12.3 billion, 700p-per-share bid, which was rejected as too low. Some analysts believe News Corp may have to push its offer to 900p-per-share or above, even though one report last week suggested that Murdoch would not be willing to go that high.

Royal Bank of Scotland analyst Paul Gooden sees 840p-per-share as "fair value" but with potential synergies offering savings of as much as 75 million a year, he believes a 900p-1,000p-per-share offer is "plausible".

Citi media analyst Thomas Singlehurst argues that News Corp may capitulate on price just to push the deal through while the government is still on its side. "The evidence that News Corp is in a hurry suggests that it may be willing to pay 900p to 1,000p to secure a deal quickly," he said.

Tim Daniels, media strategist at Olivetree Securities, suggests BSkyB's board will be able to use News Corp's desperation to wrap up the acquisition quickly. "It will give them considerable fire power to demand a high price," he said. "Murdoch has shown how much he wants to acquire the asset, and how speedily he wants to do so. It seems he doesn't have much leverage to avoid paying shareholders top-dollar."

With the markets regarding the deal pretty much as a fait accompli, attention over the next 15 days will turn to the political battle. Hunt insists that spinning off Sky News would make it more independent. He has also stressed that he has the regulator Ofcom on his side.

"Ofcom assure me that the undertakings that are being made do address the concerns that they had over plurality. After careful consideration I have decided to accept their independent advice," the culture secretary said. "News Corporation have moved a long way. They are relinquishing significant control over the operation of Sky News. This is a move that will protect plurality of news provision in the UK, something that is incredibly important."

Despite his assurances, opponents think Murdoch is getting off lightly. They point out that he will take full control of a highly profitable BSkyB in return for giving away a loss-making news channel. Little financial detail is available about Sky News but City watchers speculate it haemorrhages more than 20m a year, and the deal with News Corp to continue funding the channel for a decade would have to cover at least this sum.

Media commentators also question to what extent the new company will be "independent", given that News Corp will still hold a near 40 per cent stake.

Andrew Neil, former publisher of The Scotsman Publications and founding chairman of Sky, said Murdoch is likely to exercise considerable editorial control over Sky News, even as an independent company. He also suspects his former employer is playing a "long game" and his organisation will seek to regain control of the news channel in ten years.

"Rupert Murdoch I've said is like an Italian when it comes to negotiations," he said. "The real negotiation only begins once he's signed the deal and he's going to retain 40 per cent of the new company that will own Sky News and he's going to be providing most of the cash.

"If you own 40 per cent and you provide most of the cash, you in some way have got control and in the end it could come back to you. It's a long game for him here. I would not rule out Rupert Murdoch once again having control of Sky News."

Neil believes the scandal surrounding Cable's comment in December has assured Murdoch of success - no matter how much opposition is raised over the next 15 days.

"I don't think this can be stopped now. I'm afraid Mr Cable and his behaviour made it pretty much a done deal."