BSkyB's share price opened 3 per cent lower this morning after announcing a long-awaited £5.3bn deal to acquire European pay TV operators Sky Deutschland and Sky Italia from Rupert Murdoch’s 21st Century Fox, creating one of the biggest pay TV operators in Europe.
BSkyB has offered £2.9bn in cash for 21st Century Fox’s 57.4 per cent majority stake in Sky Deutschland, valuing it at €6.75 per share. It will make a voluntary cash offer to minority shareholders at that price which could take the total value of the deal to $7.4bn.
For Sky Italia it will pay £2bn in cash and transfer its stake in National Geographic at a value of £380m to 21st Century Fox.
The deal, which involved Barclays and Morgan Stanley as financial advisers for BSkyB, was announced as the broadcaster published full year results which saw pre-tax profits fall six per cent to £1.2bn.
Subscribers of the combined company will number 20 million and will be the leading pay TV company in three of Europe's four largest markets.
BSkyB chief Jeremy Darroch said: "This transaction will create a world-class, multinational pay TV business with enhanced headroom for growth and immediate benefits of scale."
The deal is likely to fund a renewed bid by Murdoch for US media company Time Warner which previously had its offer of $80bn turned down.
Murdoch will retain an interest in the European businesses through 21st Century Fox's 39 per cent stake in BSkyB which will remain unchanged by the deal. The US-based entertainment company was advised by Deutsche Bank and Lazard.
Profits were in line with analyst expectations, however this was overshadowed by the deal. While BSkyB paid on the low end of expectations, the minimum needed by German takeover regulations and a smaller figure than some feared it might pay for Sky Italia, the deal is seen as a defensive move that leaves some scepticism over the potential opportunity for BSkyB in these markets.
"As previously noted, we are a little more sceptical on the implications of the Fox deal and will look for more information this morning on the challenge involved in driving pay TV penetration in a so far fairly unreceptive German market (currently around 10 per cent versus around 50 per cent in the UK), the weak competitive position of Sky Italia, implied funding requirements and, importantly, the management resource required to take on these challenges at a time when it is pursuing a broad range of growth opportunities in the UK and confronting its first major content competitor in the form of BT," said Roddy Davidson of Westhouse Securities in a note this morning.