Sky Deutschland: BSkyB Takeover Offer Too Low

Brian Sullivan - P 2011

The U.K. company is planning to acquire 21st Century Fox's majority stake in the firm and full control of Sky Italia

BSkyB’s plans to build a European pay-TV empire hit some opposition on Wednesday, but none that is expected to derail it.

The supervisory and executive boards of 21st Century Fox-controlled German pay TV operator Sky Deutschland advised minority investors not to accept a multi-billion dollar takeover offer from BSkyB.

Fox is also the largest shareholder in BSkyB, with a 39 percent stake. The planned deal would see BSkyB pay $4.7 billion for Fox’s 57 percent stake in Sky Deutschland and take over full control of Italian pay-TV platform Sky Italia from Fox for around $4.1 billion.

As part of the deal, BSkyB also offered to buy the shares of Sky Deutschland’s minority shareholders for around $8.75 each, a small premium on the company’s current share price. On Wednesday, the company came out advising these shareholders that the price offered undervalues the company, a sentiment some minority shareholders have also voiced.

The offer “does not reflect the full potential and thus intrinsic value of Sky Deutschland’s business,” the company’s executive and supervisory boards said in a joint statement. Sky Deutschland’s CEO, Brian Sullivan, who owns shares in both Sky Deutschland and BSkyB, said he would not sell his stock as part of the proposed takeover.

But the boards lauded the strategic value of the planned combination in what BSkyB observers called a key validation of the proposed transaction.

The news Wednesday is unlikely to really affect the deal, which will see BSkyB create a pan-European pay-TV platform serving more than 20 million customers. Last week, Europe’s antitrust authorities approved the takeover, saying the deal would not reduce competition for the continent’s consumers.

And BSkyB CEO Jeremy Darroch has said the company doesn't need to acquire Sky Deutschland minority shareholders' stock.

The deal will also fill 21st Century Fox’s war chest after a recently dropped bid for Time Warner. Rupert Murdoch’s company made a $80 billion bid for Time Warner, but last month decided to walk away from the takeover after TW suggested the offer was too low.

"We note the statement by Sky Deutschland and we welcome their supportive comments on the strategic rationale for the transaction," said BSkyB. "There is no minimum acceptance to our offer, and we look forward to completing the acquisition of Sky Italia and a majority of Sky Deutschland later this year."

Fox declined to comment.

"I think Fox will sell its shares anyway. So, in theory it does not affect the deal," Sanford C. Bernstein analyst Claudio Aspesi said about Wednesday's news. "The only question is whether Fox shareholders start agitating and demanding a higher price.

Libertum Capital analyst Ian Whittaker similarly said the news was "no surprise" to him. BSkyB offered no real premium. "and therefore there was never going to be a realistic chance the company would say yes," he said. "Plus, BSkyB is quite happy not to have to buy out the minority."

7:06 a.m. Updated with analyst comments and BSkyB comment.

Georg Szalai in London contributed to this report.

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