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BSkyB, Vodafone Deal Chatter Continues

BSkyB CEO Jeremy Darroch Headshot - P 2012
Courtesy of BSkyB

The U.K. pay TV giant, in which Rupert Murdoch's 21st Century Fox owns a 39 percent stake, and the telecom firm could benefit from increased cooperation or even a combination, say analysts.

LONDON – U.K. industry chatter about new possible collaborations between pay TV giant BSkyB, in which Rupert Murdoch's 21st Century Fox owns a 39 percent stake, and telecom giant Vodafone continued on Monday.

The two companies have discussed deals that could allow Vodafone to offer BSkyB’s sports and movie channels to more of its subscribers and see the partners team up on a broadband service to stem telecom firm BT's growing broadband market power and momentum, The Sunday Times, part of Murdoch's News Corp, reported.

BSkyB and Vodafone declined to comment, and analysts said they couldn't confirm any new talks between the companies, which already cooperate in various ways.

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BT has increasingly become a bigger competitor for BSkyB, led by CEO Jeremy Darroch, over the past year or so, launching sports channels that compete with Sky Sports and offering them for free to broadband subscribers.

Analysts have therefore suggested that BSkyB could look at possible ways to cooperate with Vodafone more closely. Some have even suggested that Vodafone could make an acquisition play for BSkyB or the two could consider a merger.

"A logical development could be for BSkyB and Vodafone to bundle each other’s products together," said Jefferies analyst Jerry Dellis on Monday. "Consumers could be offered BSkyB triple-play together with Vodafone 4G mobile at a discount to the sum of their respective prices." That could also counter BT's planned push back into mobile phone services.

Discussing the financial and strategic aspects of a possible BSkyB-Vodafone pact, Dellis said: "Benefits could be fairly extensive. Both companies should benefit from reduced churn. Vodafone might have more to gain here in that its churn is (typically for a U.K. operator) much higher than BSkyB’s. However, BSkyB might gain too if it can lock quad-play customers into 24-month contracts, typical of mobile but double its normal tie-in at present."

UBS analyst Polo Tang drew similar conclusions: "Our interpretation of the report is that BSkyB-Vodafone will look to market/cross-sell a joint quad-play product ahead of BT launching into mobile later this year."

But he reiterated a suggestion he had made in a recent report: "Potentially, we believe Vodafone/BSkyB could take this a step further and announce a merger."

He estimated that a merger or acquisition of BSkyB by Vodafone could yield "significant cost/revenue synergies worth up to $4.34 (2.64 pounds) per BSkyB share."

But Dellis spoke out against a merger or acquisition. "We don't believe that Vodafone should bid for BSkyB," he wrote. "A successful bid would probably have to value BSkyB shares at a 25 percent premium to current levels, a $26.3 billion (£16 billion) enterprise value. That would be a rather large proportion of the $34.5 billion (£21 billion) that Vodafone is retaining from Verizon Wireless proceeds [after a recent deal]."

Tang recently also suggested that 21st Century Fox could launch another attempt to acquire full control of BSkyB in the next couple of years.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai