Will Fox Renew Bid for Full Control of Sky?
Analysts debate if the entertainment conglomerate could launch another bid for full control down the line, while one shareholder of the pan-European pay TV giant criticizes the appointment.
When James Murdoch was named CEO of 21st Century Fox last year, analysts and industry watchers immediately started discussing whether his promotion would change the conglomerate's approach to pan-European pay TV giant Sky, in which Fox owns a 39 percent stake.
After all, Murdoch is a former CEO and chairman of what was then U.K. pay TV company BSkyB. And in 2011, what was then known as News Corp., before the split into Fox and News Corp, offered to buy full control of BSkyB before abandoning the plan amid the phone-hacking scandal.
Murdoch was also a driving force behind the late 2014 deal that saw BSkyB acquire Fox’s Sky Deutschland and Sky Italia to create the enlarged Sky, which operates in five European countries, namely the U.K., Ireland, Italy, Germany and Austria. Fox has left its future options for Sky open.
Sky "is moving at a very fast pace and has grown in value enormously," James Murdoch told The Hollywood Reporter in an October cover story. "We've also been clear that over time, having 40 percent of an unconsolidated asset is not an end state that is natural for us. Right now, we're 100 percent focused on supporting the company to get this integration going and get it done for the business to move forward, so there are no plans on the agenda right now."
But with Sky early on Friday announcing that Murdoch would become its chairman this spring, replacing the outgoing Nick Ferguson, the debate was reignited, and analysts differed in their assessment of whether the news makes a renewed Fox bid for full control more likely down the line.
“Without a shadow of a doubt,” Peel Hunt analyst Alex DeGroote told THR. “Not imminently. Perhaps in a year.”
But Sanford C. Bernstein analyst Claudio Aspesi said: “I think it makes no difference at all.”
And Pivotal Research analyst Brian Wieser said: “You could argue it either way. If you think they think they could never get regulatory approval, then putting James in charge is just another helpful way to maximize the potential for synergies between the companies without taking control. On the other hand, if you think they are biding time until there is a more favorable climate for them, which could be years or decades, then this is a good way to be positioned.”
Several industry observers said though that there was no urgency for Fox to change its ownership in Sky one way or another as the benefits of the larger size and financial momentum are already in place. One Wall Street observer who doesn't cover Sky and therefore didn't want to be named also pointed out that if Fox was planning a takeover bid for Sky over the near-term, it likely wouldn't let Sky make Murdoch chairman to avoid a conflict of interest.
James Murdoch resigned as chairman of what was then BSkyB in 2012 amid the hacking scandal at News Corp.’s U.K. unit, where he had also served as chairman.
One Sky shareholder on Friday criticized Murdoch’s appointment as chairman. Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, which owns a 0.27 stake in Sky worth around $70 million (49 million pounds), said: "The re-appointment of Mr. Murdoch as chairman is inappropriate in our view. Should Fox make a bid for Sky, investors need a strong independent chairman to protect the interests of minority shareholders and negotiate the best possible deal."
"Our senior independent non-executive director Martin Gilbert led the process, and the nomination committee met separately from the board," Sky CEO Jeremy Darroch told reporters on Friday. "It then put its recommendation to the board [members] who approved it unanimously." He said Murdoch was the only name proposed to the board.
Gilbert, head of Aberdeen Asset Management, which also owns Sky shares, is becoming deputy chairman, a role which the company didn't have in recent years, and Andrew Sukawaty will take on the role of senior independent director. That will leave Sky with 12 board members, of which six are deemed to be independent.
Darroch also told reporters: "We say thanks to Nick, he's been great, and welcome to James. He obviously knows the business well, knows us well." Asked if discussion about the appointment may distract Sky management, the CEO said: "We are very focused. And I think if you look at our track record, we stayed focused ... When James was chairman, he stepped aside at the time. He is a big supporter of the business."
He added: "Our model for governance has been in place for some time and has actually been quite effective," including during the previous takeover bid. "That provides a very robust structure."