BSkyB shares up as it rejects News Corp offer

Offer values the British sport and movies giant at $11.5 bil

LONDON -- Shares in BSkyB soared Tuesday (June 15), trading up over to 715 pence ($10.54) per share after the satcaster rejected News Corp's 700 pence ($10.32) per share takeover offer as "undervalued," and suggested that it would hold out for an offer somewhere north of 800 pence ($11.80)

News Corp's bid for the 61% of the satcaster it does not already own, values the British sport and movies giant at £7.8 billion ($11.5 billion).

The deal would allow News Corp. boss Rupert Murdoch to consolidate cashflow from the hugely cash-generative British pay TV giant into News Corp. to perhaps fund further acquisitions.

The long-mooted deal has also crystallized as a genuine possibility at a time when the value of sterling is low and when a new right-of-center British political administration may be much more minded to favor the deal than its predecessors. Regulatory oversight is still expected to take over a year.

A deal would also complete the Murdoch family's perhaps sentimental desire to retake control of the satcaster that Rupert Murdoch launched 25 years ago, a financial gamble which at the time almost brought News Corp. to its knees.

In subsequent years BSkyB has made huge investment in its platform, in the range and platforms on which viewers can access its content and in being the first to launch new technical propositions such as Internet access, DVR facilities, HD and 3D services.

By the end of the year it is on track to have 10 million subscribers -- and posted revenues up 10% at £4.4 billion ($6.5 billion) on operating profit of £618 million ($912 million) in the nine months to March 31.

A deal between News and Sky would also impact the local British media market, and would likely force Sky chief executive Jeremy Darroch to back out of kicking the tires on a deal to acquire terrestrial network Five, which is currently owned by pan-European giant RTL.

Sky has been thought of as a likely contender in any future auction of Five, but if it pulls out then the potential buyers are more limited. So far, ITV, Channel 4 and Endemol are thought to be interested.

BSkyB confirmed details of News Corp's offer Tuesday morning, sending shares up over 20% at one stage after the stock closed Monday night at 535 pence.

In a statement, the satcaster said it had rejected an earlier 635 pence ($9.34) a share as well.

"News Corp. and the BSkyB Independent Directors have been unable to reach a mutually agreeable price at the current time. However, both parties have agreed to work together to proceed with the regulatory process in order to facilitate a proposed transaction."

Based on advice from Morgan Stanley and UBS, BSkyB's board said they would support an offer of 800 pence.

"We believe that this is the right time for BSkyB to become a wholly owned part of News Corp, with its greater scale and broader geographic reach," said Chase Carey, deputy chairman, president and chief operating officer at News Corp.

Carey said News Corp. would benefit from a deal by "increasing the geographic diversification of our earnings base, reducing our exposure to cyclical advertising revenues and increasing our direct consumer subscription revenues."