BSkyB should start to build in new bid premium

September 20, 2012

By Chris Hughes

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

BSkyB shares should start to reflect the chance of a second bid from News Corp. Ofcom, the UK media watchdog, has confirmed that Rupert Murdoch’s media group is a suitable lead shareholder in the satellite broadcaster despite the phone-hacking scandal in News Corp’s UK newspaper business. The clarification removes a potential obstacle to it taking full control of the business.

Ofcom excoriates Rupert’s son James for his mishandling of the phone-hacking affair, detailing management failings as late as December 2010. His conduct was “ill-judged” and “fell short” of what was expected of him. Ofcom also fails to endorse James’s account of what he did and didn’t know about the scandal, saying only that there was no convincing evidence to contradict his version of events.

The Ofcom verdict clearly vindicates the BSkyB board’s decision to demote James from chairman to non-executive director in April. Without that switch, Ofcom may well have forced his exit or stripped BSkyB of its broadcasting licence. Crucially, however, Ofcom is content to allow Sky to continue broadcasting with James on the board.

There are still risks in a new bid for Sky. Ofcom might change its mind if it gets new information from criminal cases relating to phone hacking, or from the forthcoming Leveson report into UK media standards. Even if News Corp gets over these hurdles, any new bid would reignite the political firestorm in Britain against the Murdoch empire.

But News Corp has long coveted full control of BSkyB and may well decide to move before the next UK general election, due in 2015. The current government could have blocked it on grounds of reduced media choice but seemed prepared to approve the deal before the hacking scandal broke. Dissenting voices in the ruling coalition government came from the junior Liberal Democrats, but they are a weakened political force. The 2015 vote, meanwhile, could see the election of a new, Murdoch-hostile, Labour administration.

The planned demerger of News Corp’s publishing businesses, due to complete next year, will put helpful additional distance between the broadcasting core and the troublesome UK print business. The Murdoch empire has the firepower it needs to complete the buyout, which is worth $12 billion at the current share price, and probably retains the ambition. It might well strike back.

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