Opinions mixed as BSkyB buys into ITV


NEW YORK -- With the U.K. advertising market sluggish and broadcaster ITV getting low marks for its current programming, why would anyone want to buy a stake in or all of a company which, on top of everything else, is still looking for a new CEO?

For beginners, it may be a case of buying at the bottom in anticipation that things can only get better.

Plus, if you are a big distribution player like U.K. satellite giant BSkyB or cable operator NTL Inc., taking at least a stake in ITV is a content play.

But while that may explain the recent showdown between BSkyB and NTL over ITV, both companies' shares have been under pressure as investors scratch their heads.

ITV said last week that it has rejected an NTL takeover offer. Just days earlier, News Corp.-controlled BSkyB raised eyebrows when it announced a $1.8 billion deal to buy a 17.9% stake in ITV -- a transaction that looked expensive to many investors.

But there is indeed one strategic benefit for BSkyB as it "can now effectively block a sale of ITV to NTL given that a 75% majority would be required to approve such a transaction," Credit Suisse analyst Bryan Kraft explained.

UBS analyst Daniel Kerven gave the acquisition of a minority stake mixed reviews, calling it "a bold but defensive move" by BSkyB "at a limited cost," with the satellite firm "seeking to ensure ITV's platform neutrality." Added Kerven: "Synergies from the stake are likely to be very limited given its minority stake and regulatory constraints."

Many expect NTL will now encourage regulators to take issue with BSkyB's acquisition and open a back door for NTL to take control of the company after all.

Could NTL also look for another takeover target? "We think the answer is no, because there really aren't any other potential content acquisition targets in the U.K.," Kraft said.

But Ovum analysts Mike Cansfield and Aleksandra Bosnjak believe that the consolidation process in the U.K. media and cable space "is now entering its second stage," which will see "more complex cross-sector mergers" potentially involving telecom, software and other types of companies.

More deals and more exotic deals could, of course, end up alienating investors and dragging down stocks even more, some warn -- unless companies can draw up transactions whose benefits they can convincingly communicate.

For a case in point, some point to NTL itself. They say it did a good job earlier this year in explaining the benefits of its Virgin Mobile deal.