News Corp. to Take Controlling Stake of 54.5 Percent in Germany's Sky Deutschland

11:55 PM PST 1/13/2013 by Georg Szalai

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UPDATED: Rupert Murdoch's entertainment conglomerate has agreed to help the pay TV giant with a new financing deal and boost its ownership stake from 49.9 percent.

LONDON -- Rupert Murdoch's News Corp. said Monday that it has agreed on a financing deal with Sky Deutschland that will allow the entertainment conglomerate to increase its holding in the German pay TV company to a controlling stake.

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The agreement will boost the company’s stake from 49.9 percent to a 54.5 percent majority ownership.

Sky Deutschland will sell 77.9 million new shares to a News Corp. unit, raising about $465 million in new equity, Sky Deutschland and News Corp. said. In addition, Sky Deutschland reached an agreement to refinance $400 million (300 million euros) in bank credit facilities guaranteed by News Corp.

“We have always believed in Sky Deutschland’s ability to transform the pay TV experience in Germany and Austria, and this new financing structure further validates that long-standing commitment,” said News Corp. president and COO Chase Carey. “News Corporation’s continued investment underscores the value we see in Sky Deutschland and the significant market opportunities it faces, and reflects our confidence in its management team and their strategies for growth.”

The News Corp. guarantees cover German Bundesliga soccer league rights that the pay TV company has secured. The conglomerate said it has committed “to provide a guarantee to Sky Deutschland’s lending banks and to act as guarantor to the German Football League for Sky Deutschland’s new Bundesliga broadcasting license for the 2013/14 to 2016/17 seasons in an amount of up to 50 percent of the license fee per season.”

Analysts predicted that any new financing arrangement could allow Sky Deutschland to pursue new growth plans. “We suspect this is to drive aggressive growth plans -- free Sky+HD/DVR boxes,” said UBS analyst Polo Tang in a first reaction.

But observers also highlighted that News Corp. does not have to make a mandatory bid for full ownership of the company despite looking to take a majority stake and that the German pay TV firm increased the expected size of its capital increase. “We are bullish on Sky Deutschland’s prospects, but investors will want clarification on why the capital raising size increased (to €438 million from €144 million) and why a private placement was done to News Corp. rather than a full rights issue,” Tang said.

Wells Fargo analyst Marci Ryvicker lauded the financing deal as the latest News Corp. move to consolidate the financials of a growth asset in which it has so far only held a minority stake. “Bottom line, we like News Corp.'s move to increase its stake in Sky Deutschland as it is consistent with management’s strategy of monetizing investments,” she said. “Although Sky’s [operating cash flow] through nine months of 2012 was roughly flat, it is a significant improvement over the $130 million loss through the first nine months of 2011. We would note that on the last earnings call, Sky also guided to positive [operating cash flow] in 2013 with strong growth thereafter. ”

Last year, the stock of Sky Deutschland was the biggest gainer among major European entertainment companies.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai