By Matthew Curtin and Caitlan Reeg
British Sky Broadcasting Group PLC said Monday that it had
started preliminary discussions with 21st Century Fox over a
multibillion-dollar acquisition of its pay-TV assets in Germany and
Italy.
In the possible reshuffle of media mogul Rupert Murdoch's
broadcasting business in Europe, the U.K. company would be taking
part in the recent accelerated consolidation of Europe's cable,
television and telecom sectors. Industry executives are looking for
cross-border heft in buying rights to show sports and
entertainment, and in developing content of their own.
The deal would involve the British company buying 21st Century
Fox's 57% stake in Sky Deutschland AG, an investment valued at
about EUR3.2 billion ($4.4 billion) based on the company's closing
share price Friday. BSkyB would then launch a mandatory takeover
offer for the rest.
BSkyB, which itself has a market capitalization of around
GBP13.6 billion ($22.9 billion), said the mandatory offer would be
made without a premium. Sky Deutschland shares nevertheless jumped
9.9% in Frankfurt Monday.
The British company would also acquire Sky Italia, a major
sports broadcaster in Italy, which is wholly owned by 21st Century
Fox.
BSkyB itself is 39%-owned by 21st Century Fox, which until
mid-2013 was part of the same company as Wall Street Journal parent
News Corp. The original News Corp in 2011 abandoned a planned bid
for the rest of BSkyB amid a furor over reporting practices at one
of News Corp's U.K. newspapers.
The combined European broadcasting group would have around 20
million subscribers, adding Sky Italia's five million and Sky
Deutschland's 3.7 million to BSkyB's 10.5 million television
customers, according to the companies' websites.
"These discussions haven't progressed beyond a preliminary
stage, no agreement has been reached on terms, value or transaction
structure and there is no certainty that a transaction will occur,"
BSkyB said. It was unclear whether the talks were continuing.
A separate statement from 21st Century Fox confirmed that talks
had been held. The company said that "over the years we've had
numerous internal discussions regarding the organizational and
ownership structure of the European Sky-branded satellite platform.
From time to time these conversations have included BSkyB," adding
that "no agreement between the parties has ever been reached."
Sky Deutschland had no comment.
Odey Asset Management LLP--the second-largest holder of Sky
Deutschland shares, with an 8% stake--reacted negatively to the
proposal Monday. The firm said the lack of a premium for minority
holders "significantly understates the value of the company."
Tough antitrust scrutiny in the U.K. and Europe is likely to
follow should BSkyB reach a deal. British regulatory authorities,
including media watchdog Ofcom, and the government are particularly
leery about concentration of ownership in the country's media
sector, where Mr. Murdoch, controlling shareholder of both 21st
Century Fox and News Corp, has long had a major presence through
his investments in television and newspapers like the Times and the
Sun.
A person familiar with the matter said that 21st Century Fox
doesn't intend for any transaction to increase its stake in BSkyB
beyond its current 39%. Ofcom declined to comment Monday.
To address possible conflicts of interest in the current deal
negotiations, BSkyB said all board discussion of the issue is
solely within a committee composed of its independent directors,
which doesn't include directors affiliated with 21st Century
Fox.
Some analysts were skeptical about the likelihood of the deal
going through and the merits of it for BSkyB shareholders.
"[It] would be an expensive deal," said analysts at J.P. Morgan.
"We don't see substantial synergies and it wouldn't enhance BSkyB's
cash-flow capacity short-term," they said in a research note.
The enlarged pay-TV operator would achieve modest savings in
product development and greater leverage in bidding for sports and
movie rights, and have deep pockets for developing for original
content, analysts at Credit Suisse said.
While the combined company would have promising growth in
Germany, which has a relatively low level of pay-TV penetration,
its subscriber base in Italy has shrunk since 2011.
The BSkyB approach to its German and Italian sister broadcasters
follows a number of recent deals in the European broadcast-media
sector. Liberty Global PLC, the cable operator majority-owned by
U.S. media magnate John Malone, has made a EUR6.9 billion
acquisition of Dutch cable operator Ziggo NV, subject to approval
by the EU's competition regulator, which is investigating the deal.
Liberty Global has snapped up a dozen cable operators in Europe in
the past year. Earlier this month, the cable company and U.S. cable
firm Discovery Communications Inc. teamed up to buy independent
U.K. television producer All3Media for GBP550 million.
Viacom Inc., controlled by Sumner Redstone, announced in early
May that it would acquire British broadcaster Channel 5
Broadcasting Ltd. for GBP450 million as the U.S. media company
seeks to build its audience in the U.K.
Ian Walker, Amol Sharma and Nicholas Winning contributed to this
article.
Write to Matthew Curtin at matthew.curtin@wsj.com and Caitlan
Reeg at caitlan.reeg@wsj.com
Corrections & Amplifications
21st Century Fox said that "over the years we've had numerous
internal discussions regarding the organizational and ownership
structure of the European Sky-branded satellite platform. From time
to time these conversations have included BSkyB." An earlier
version of this article incorrectly attributed that statement to
BSkyB.
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