Rather that postpone what was heading towards inevitability — and endure the increased scrutiny that comes with it, Rupert Murdoch is backing down completely from any effort to acquire full ownership of BSkyB (NYSE: BSY). The announcement came just after scathing comments in Parliament and a biting repudiation by Prime Minister David Cameron but ahead of a formal debate and motion that had all three major parties condemning him. Notably, the news was delivered by his News Corp (NSDQ: NWS). deputy chairman, Chase Carey:
“We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate. News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it.”
The share price for BSkyB fell by more than three percent in the minutes after the announcement was made but quickly rebounded. News Corp. shareholders responded positively, echoing suggestions by U.S. analysts that News Corp is better off without buying BSkyB.
The language preceding Carey’s statement is also important: “News Corp. “no longer intends to make an offer for the entire issued and to be issued share capital of British Sky Broadcasting Group PLC (“BSkyB”) not already owned by it.”
Unlike U.S. merger or acquisition deals, technically what News Corp. had done was promise to make a cash offer of 700p a share for the 61 percent of BSkyB it didn’t already own; the companies had an agreement to seek regulatory approval. The breakup fee of roughly $60 million was set to kick in if News Corp. didn’t make a timely bid following regulatory approval.
From the fine print in the last News Corp. 10K: “There can be no assurance that the Company will make a binding offer. The Company will pay BSkyB a breakup fee of approximately $60 million as of March 31, 2011 if the regulatory approvals are obtained and the Company does not make a binding offer within five months thereafter of at least 700 pence per share.”
BSkyB’s response boils down to look at what we’ve done, not who owns a large chunk of the company or wanted to buy it all.
From the statement:
Since the start of the offer period, BSkyB’s management team has remained fully focused on its strategic and operational priorities, as evidenced in the strong results reported for the first nine months of the financial year. With good momentum and a range of options for continued growth, BSkyB is well positioned to increase earnings and cash flow and deliver higher returns for shareholders.
Last year’s offer sent BSkyB’s stock soaring as investors and the market claimed Murdoch was lowballing the price at 700p. The current price today of 690p, is ahead of where the stock was when talk of a Murdoch bid began but wipes out all of the gain.
News Corp. sought full control of the company as a hedge against the advertising market. The current stake brings money into to News Corp. as an investment but Murdoch wanted the subscription business as a steady source of income added to the balance sheets. The idea was particularly appealing during the deep ad recession and fit in well with News Corp.’s other activity in owning satellite and cable distribution outside the U.S. BSkyB currently has more than 10 million subscribers.
Is the idea dead? Perhaps if the current climate relaxes enough and News Corp. changes enough — but it can’t try again for at least six months.
Is News Corp.’s role in BSkyB over? Far from it, unless regulators kick in and demand News Corp. relinquish any stake. For now, it’s business as usual, which means James Murdoch remains as chairman and non-executive director.