News Corp. (NWSA) on Tuesday declared its intention to acquire a 61% stake in British Sky Broadcasting Group Plc. (BSkyB) for £7.8 billion (US$11.5 billion) or 700 pence per share. The Rupert Murdoch-led News Corp. already owns a 39% stake in BSkyB.
However, BSkyB’s management has rejected the offer as too low and stated that they may support an offer of more than 800 pence per share. Nevertheless, BSkyB has entered into an agreement with News Corp. to work together to obtain the required approvals from regulatory authorities in the event of a merger. Moreover, both companies have decided to discuss on a valuation, which benefits all shareholders.
News Corp.’s offer of 700 pence per share represents a premium of 16.7% over BSkyB’s closing price of 600 pence on Monday. According to News Corp, the offer also values BSkyB at approximately 11.8X the latter’s EBITDA (earnings before interest, taxes, depreciation and amortization) of £1.1 billion (US$1.7 billion) for the preceding twelve months ended Mar 31, 2010. News Corp. plans to finance the deal by utilizing its cash hoard of US$8.1 billion as of Mar 31, 2010 and borrowed funds.
News Corp. also disclosed that it made an initial offer of 675 pence per share to BSkyB last Thursday. The initial offer represented a premium of 17.6% over BSkyB’s closing price of 574 pence per share on Wednesday.
British Sky Broadcasting together with its subsidiaries operates the leading pay television service in the UK and Ireland as well as broadband and telephony services. The company had approximately 9.8 million customers and 16,000 employees as of Mar 31, 2010.
News Corp.’s offer for BSkyB is targeted at its strategy of further diversifying its revenue streams, trimming exposure to cyclical advertising revenues and bolstering direct consumer subscription revenues. The acquisition, if it materializes, is expected to significantly boost News Corp.’s reach and will provide it the necessary scale to compete effectively with other media giants, such as Time Warner Inc. (TWX) and Walt Disney Company (DIS).
News Corp. was advised by Deutsche Bank (DB) and JPMorgan Cazenove, a unit of JPMorgan Chase & Co. (JPM) on the deal, while BSkyB was advised by Morgan Stanley (MS) and UBS AG (UBS).
We currently have a Neutral recommendation on News Corp.’s shares.
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