BSkyB acquires Fox’s pay-TV assets in Germany and Italy for $9 bn

UK satellite-television company British Sky Broadcasting (BSkyB) today announced it had signed an agreement with Rupert Murdoch's 21st Century Fox to acquire Fox's 100 per cent stake in Sky Italia and its 57.4 per cent interest in Sky Deutschland.

Fox owns 39 per cent of BSkyB.

BSkyB on 12 May 2014 said it had initiated preliminary discussions with Fox to evaluate the potential acquisition of its pay-TV assets in Germany and Italy (See: BSkyB in talks to merge 21st Century Fox Pay-TV assets in Germany and Italy)

The enlarged company will be a global multinational pay TV provider with 20 million customers and combine the leading pay TV businesses in three of Europe's four biggest markets.

The total consideration for the acquisition of Sky Italia is £2.45 billion with approximately £2.07 billion to be paid in cash and the balance to be satisfied through the transfer of BSkyB's 21-per cent stake in National Geographic Channel International to 21st Century Fox at a value of £382 million.

The acquisition of 21st Century Fox's shareholding in Sky Deutschland is for a consideration of £2.9 billion in cash, valuing Sky Deutschland at €6.75 per share. The transactions are subject to regulatory and independent shareholder approval.

Murdoch's move to sell his pay-TV assets in Germany and Italy is seen as his plan to gain funds to fund the take over of Time Warner Inc, which recently rejected Fox's initial $80 billion bid (Time Warner spurns Murdoch's $80-bn offer).

The combination of the three businesses will build on BSkyB's strong track record of delivery and success in the UK and Ireland. Over the last five years, BSkyB has more than doubled its paid subscription products base and increased revenues by 43 per cent as a result of its well-established strategy of broad-based growth.

''The enlarged business will benefit from a significantly expanded opportunity for long-term growth and value creation, with 97 million addressable households. Of these households, around 66 million have yet to take pay TV and there is significant headroom to sell additional products to and launch new services for customers,'' BSkyB said in a statement.

The acquisitions will also bring benefits of scale, taking BSkyB from 11.5 million customers to 20 million. On an aggregated basis, group revenues will increase from £7.6 billion for the standalone BSkyB to £11.2 billion.

BSkyB said it expected its credit rating to be downgraded after the deal.

It pledged to bring its debt ratio back down in the medium-term to two times earnings before interest, tax, debt, and amortisation (EBITDA). As a result, the group said it would not resume share buybacks or do any further acquisitions until its leverage target was achieved.

Last year, Fox and News Corp. were split into separate publicly traded companies, with the Murdoch family maintaining large voting shares in both.

BSkyB, which offers satellite TV, broadband and phone services in the UK, is under increased pressure as BT Group Plc uses free sports channels to win internet customers. John Malone's Liberty Global Plc has also stepped up competition by acquiring Virgin Media last year.

BSkyB, which spends about £2 billion a year on content, this week bought a 70-per cent stake in the UK's Love Productions, producer of Great British Bake-off and TV documentaries such as Benefits Street.

Last week, BSkyB sold a minority stake in ITV Plc, the UK's biggest commercial broadcaster with top-rated shows such as Downton Abbey, to Liberty Global Plc for £481 million (See: Liberty Global acquires 6.4 per cent stake in ITV).