BSkyB unveils plan for European pay-TV giant

BSkyB has announced an ambitious plan to create a European pay-television giant that will more than treble the company’s potential customer base. Announcing its full-year results on Friday, BSkyB confirmed that it had reached a deal with 21st Century Fox (21CF) to acquire its 100% interest in Sky Italia and 57.4% stake in Sky Deutschland in deals worth a combined £5.3bn.

The transactions will give the company access to markets in Germany and Italy where seven out of ten homes have yet to sign up to pay-TV services. In total, BSkyB’s potential customer base will increase from 30 million households to more than 97 million.

Jeremy Darroch, BSkyB’s chief executive, said: “This transaction will create a world-class, multinational pay-TV business with enhanced headroom for growth and immediate benefits of scale. The three Sky businesses are leaders in their home markets and will be even stronger together. By creating the new Sky, we will be able to use our collective strengths and expertise to serve customers better, grow faster and enhance returns.”

Completion of the takeover in Germany may involve buying out minority shareholders in Sky Deutschland, who are being offered the same price for their shares as that accepted by 21CF. The German stake is costing BSkyB £2.9bn, while the Italian takeover comprises £2.1bn in cash as well as BSkyB’s shareholding in the National Geographic channel worth about £380m, which 21CF is acquiring.

BSkyB is funding the takeovers through a combination of debt and asset sales, as well as raising 9.9% of its share capital through a placing. Under the terms of the fundraising, 21CF, which is chaired by Rupert Murdoch, will retain its stake of just under 40% in BSkyB by subscribing for its pro rata position, worth approximately £500m.

BSkyB said the deals would generate annual cost synergies of about £200m.
Friday’s announcement underlines the quickening pace of media consolidation on both sides of the Atlantic.

Last week, BSkyB received nearly £500m from the sale of its remaining shareholding in ITV to Liberty Global, the owner of Virgin Media. 21CF, meanwhile, is expected to channel the proceeds from its European disposals into a war chest aimed at sealing a takeover of Time Warner, owner of the Warner Brothers film studio and the CNN news network.

BSkyB’s results for the 2013-14 financial year were stronger than consensus forecasts, with adjusted revenue up 6.5% to £7.6bn. Operating profit slipped by just 5% to £1.26bn despite heavy investment in product development and distribution, and the higher cost of Premier League rights. Negotiations over the next three-year contract to broadcast live top-flight English football are expected to get underway early next year.

Analysts say the threat of another significant hike in the cost of the rights, or of being outbid altogether, may act as a drag on BSkyB’s share price until the outcome of the auction is clear.

However, Darroch pointed to the strongest growth the company had seen for three years, with nearly 35 million products now taken by customers across pay-TV, broadband, telephony, on-demand and mobile services. BSkyB has also sought to reduce its reliance on the Premier League to attract customers, signing major rights renewal deals with other sports and investing heavily in drama and entertainment content.

The share price — up 10% over the past 12 months — fell back by 3% in early trading on the FTSE 100 on Friday as investors digested news of the acquisitions and equity-raising.

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