BSkyB – look beyond the lynch mob


So the lynch mob is out and led by such political worthies as Keith Vaz. How can David Cameron do anything else but embrace the ‘popular’ frenzy that has been whipped up by Murdoch’s media rivals and fickle Westminster toadies.  The BSkyB bid is of course now dead, or so we are reliably informed by Roland Rat’s creator and as MPs exercise some political posturing by voting against the deal (albeit legally meaningless), prior to jetting off on vacation to exotic locations on taxpayer funded junkets or courtesy of some dodgy billionaire sponsor.
Naturally Murdoch will be suitably humbled and slink off to the US, never to grace these shores again. Dream on!
As Murdoch’s shares free-fall, what are the options for BSkyB’s share and how should investors position themselves.
Option 1: Murdoch/News Corp is not deemed fit and proper to own a UK broadcaster. While an unlikely verdict by OFCOM, it could precipitate either Murdoch withdrawing from News Corp’s management or a sale of their current 39% holding in BSkyB (as this already represents a controlling interest).  Both outcomes could be positive by either reviving the bid or forcing News Corp to divest. To seek the best possible price for shareholders, News Corp would undoubtedly use its controlling stake to put BSkyB into play to secure a control premium for its shares.
Option 2: Status Quo – Murdoch/News Corp remain fit to own BSkyB, but are scared off from pursuing the bid or are blocked by a spurious ‘public interest’ test (which could be appealed) and sit still with their existing stake until the storm passes. Without the immediate bid premium, the shares settle down to a fundamental valuation, although as highlighted by my FCF/Growth rating analysis, as margins ratchet up, this may not be materially below were they are at the moment.
Option 3: Murdoch fights back – Today’s fight-back from the Sun and Times suggest that there may be life in the old dog and that he’s not going to give up his bone just yet. The general assumption that top management is implicated in illegal activities has yet to be proved. While the concession to having the bid referred to the competition authority (by withdrawing the earlier concession to divest Sky News) will kick the deal into touch for a good six months, it would provide Murdoch more time to resolve some News Intl management issues as well as get his PR response to these accusations better sorted.
For premium research content including bespoke analysis and valuations please contact me at for further information