Tuesday 20 August 2019

Markets sceptical as Murdoch expands TV empire with Sky deal

News Corporation CEO Rupert Murdoch. Photo: AP
News Corporation CEO Rupert Murdoch. Photo: AP

Rebecca Penty

US media group 21st Century Fox has agreed to acquire Sky for £11.7bn (€14bn), in Rupert Murdoch's second run at Europe's dominant pay-TV company. The media billionaire is seeking to consolidate his television empire across two continents.

Fox - which already holds a 39pc stake in London-based Sky - will pay £10.75 a share for the rest, according to a statement on Thursday.

Murdoch is returning after a previous bid was thwarted in 2011 over a phone-hacking scandal at his newspapers.

The new deal gives Fox a distribution platform to complement its film studio and cable channels such as FX and National Geographic. Sky provides satellite-TV service to 21.8 million customers across Ireland, the UK, Italy, Germany and Austria, and has been adding exclusive entertainment and original content to its core sports offerings while expanding into broadband and mobile service.

The purchase "creates a global leader in content creation and distribution, enhances our sports and entertainment scale, and gives us unique and leading direct-to-consumer capabilities and technologies", Fox said in the statement.

Fox pledged to keep Sky's headquarters in London and complete a £1bn investment in the campus. The company also said it expects Sky News to maintain "its excellent record of compliance with the Ofcom Broadcasting Code".

For Murdoch, the timing of the deal is right: Momentum behind US stocks continues to build as traders bet that US President-elect Donald Trump will cut regulations and reduce taxes. In the UK, the pound has weakened against the dollar after the Brexit vote, which makes the acquisition cheaper for New York-based Fox.

Murdoch's Sky bid follows AT&T's $85.4bn deal to acquire Time Warner, owner of HBO, CNN and Warner Bros, as media groups push for scale to combat online video services like Netflix and Amazon Prime.

Sky shares have traded below the offer price, first disclosed on December 9, as investors weigh regulatory and political risks to the deal. The UK government can ask media regulator Ofcom to check whether the merger might harm plurality in the country's media.

However, Murdoch may be counting on changes to the media landscape and UK politics to clear the way. Unlike when Murdoch's News Corp bid for Sky in 2010, Fox doesn't own any UK newspapers and the rise of digital outlets may also work in the bid's favour, as people rely less on TV, radio and print publications to get their news.

Still, critics of the deal are airing their grievances. Any takeover agreement should be delayed until after second phase of inquiry into press malpractice, former British Prime Minister Gordon Brown wrote to UK Culture Minister Karen Bradley, the Guardian reported.

Fox may need to address resistance from some Sky shareholders pushing a bigger payout than the preliminary offer, which matches a price Sky's shares reached in February.

While consolidating Sky is expected to save Fox in areas like taxes, some analysts have questioned the deal's strategic value.

"We scratch our heads in terms of what a distribution company headquartered in the UK does for a global content company headquartered in the US over the long term," Wells Fargo analysts led by Marci Ryvicker wrote in a research note. "We're not buyin' it." (Bloomberg)

Irish Independent

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