BSkyB in surprise ITV foray

Purchase of 17.9% stake shocks biz

British Sky Broadcasting has launched a stealth raid on ITV, paying £940 million ($1.8 billion) for a 17.9% stake in the network, making it the commercial broadcaster's biggest single shareholder.

The move, which broke well after markets closed Friday, was made without prior discussion with the ITV board and left ITV staffers reeling.

In a statement to the London Stock Exchange, CEO James Murdoch said Sky plans to be "supportive shareholders" of ITV and has "no intention" of making an all-out bid for control. He said the bid was intended to protect ITV's value. Under U.K. competition rules, Sky is not allowed to hold more than 20% of ITV's fully diluted stock.

Nevertheless, the development sent shock waves through the media industry here and looks likely to scuttle ongoing merger talks between ITV and cable group NTL or a possible private-equity backed deal with pan-European free television group RTL.

In a hastily convened investor call late Friday, the Sky CEO said the move was designed to buy ITV some time and that Sky will not seek a position on the ITV board.

"Our investment is a long-term and supportive shareholding in ITV," he said. "It reflects our belief that ITV's decline has been overstated. BSkyB would be supportive of the ITV board. We realize that ITV has been going through tough times, but with careful stewardship it can return to form."

Murdoch said that ITV's broadcast and production assets had long-term value potential that was being destabilized by the current advertising climate and the intense scrutiny of ITV's search for a new chief executive.

"BSkyB believes that ITV is one of Europe's premier broadcasting and production businesses and holds substantial potential for long-term value creation," he said. "This acquisition of shares has taken place without the prior knowledge of the ITV board of directors, but BSkyB has today communicated to ITV's board its intention to be a supportive shareholder."

BSkyB paid a significant premium for its share tranche, offering investors — thought to include Fidelity Investment Trust and Prudential — £1.35 ($2.56) per share, compared with the market price of slightly less than £1.16 ($2.20).

ITV has been the subject of intense media and industry speculation for much of the past year as its audience share has declined and its advertising revenue also has been hit. The broadcaster declined comment.