Sky's ITV buy sets stage for battle of media titans
Virgin's Branson quick to slam dealIn terms of power plays, it was vintage Rupert Murdoch: swift, sensational and, for his rivals, deeply shocking. But like many a battle that the News Corp. chief has fought in the U.K., the outcome lies ultimately not in the strength of his attack but in the hands of competition regulators.
BSkyB's dawn raid on ITV last Friday — picking up 17.9% of the commercial broadcaster's shares while its board was in tentative merger talks with cable group NTL — has wrong-footed its rivals and sent shock waves through the industry. In addition to his News Corp. title, Murdoch is chairman of BSkyB and his youngest son James is chief executive.
BSkyB's decision to pay £1.35 ($2.56) per share for a stock trading at £1.14 ($2.16) has almost certainly put the price of the remaining 82% of ITV beyond the financial capacity of either NTL or the private equity-backed approach being put together by pan-European broadcaster RTL. ITV's board members, however, are said to be delighted at the price that stock went for. ITV's shares had been trading around the £0.96 ($1.80) level for much of the last two months.
ITV stock fell 1.25% to £1.145 Monday on the London Stock Exchange in trading that was nearly five times its average volume.
Unsurprisingly, Sky's rivals have reacted with fury at being caught napping. Entrepreneur Richard Branson, whose Virgin Mobile business was acquired by NTL this year and who is a key architect of the NTL/ITV proposal, has issued noisy calls for regulators to scupper the deal.
"BSkyB's move is a blatant attempt to distort competition even further by blocking any attempt to create a strong and meaningful competitor (in a merged ITV/NTL)," Branson said in a statement.
"This move is seriously damaging to the interests of viewers, program makers, artists and shareholders, and the time has come for regulators, politicians and consumers to finally show that they're willing to stand up to the reckless and cynical attempts to stifle competition and secure creeping control of the British media," he added.
NTL plans to appeal directly to media regulator Ofcom this week to block the deal and has threatened to make a formal complaint with British antitrust regulator the Office of Fair Trading and the European Commission.
Although BSkyB can own up to 20% of ITV under current competition rules, NTL plans to assert that the acquisition last week runs contrary to the enterprise act and constitutes a "material change" of control over ITV.
Sky was keen to fight back, pointing out that it has made a business out of offering consumers added choice in television, telephony and broadband services.
"Sir Richard appears to believe that he and his partners in NTL have a unique right to acquire ITV," a Sky spokesman said. "Sky is as entitled as any of the other parties who have shown an interest in ITV to make an investment."
The stage now appears set for a battle between two of the world's most aggressive and media savvy entrepreneurs that could — if pursued to the end — take months to complete. Whether the Branson/NTL appeal will be successful, however, is in doubt.
"While the case is not entirely clearly cut, we believe that the regulator will let BSkyB keep its 17.9% stake" Merrill Lynch media analyst Julien Roch said in a note, adding that even if NTL continue to pursue the complaint the result might not be worth it.
"Based on this analysis, even if NTL can squeeze out BSkyB through a scheme of arrangement (buying the remaining 82% of ITV's stock and then buying back Sky's shares at a court-decreed price), the returns do not appear to warrant the move. Only hubris would justify it, based on the numbers."