Talks underway to create ‘Sky Europe’ pay TV giant

BSkyB has confirmed it is in preliminary talks about acquiring 21st Century Fox’s 57% stake in Sky Deutschland and Sky Italia to create a pan-European pay TV giant.

A deal involving all three companies would create a European pay TV powerhouse that would have considerable power in negotiating content deals, including sports rights.

In a statement, Sky noted “speculation about a potential acquisition of 21st Century Fox’s interests in Sky Deutschland and Sky Italia” and said confirmed that it had “initiated preliminary discussions with 21st Century Fox to evaluate the potential acquisition of its pay TV assets in Germany and Italy”.

Sky’s statement followed a Bloomberg report over the weekend that a deal – worth about €10 billion (US$13.8 billion) – could be signed as early as this summer. The figure represents a €2 billion premium on Fox’s stake in Sky Deutschland and 100% control of Sky Italia, valued at €3 billion and €5 billion respectively.

According to BSkyB, which is lead by CEO Jeremy Darroch (above), “at the right value, this combination would have the potential to create a world-class multinational pay TV group”. However the company said discussions are still at a preliminary stage and that no agreement has been reached on terms, value or the structure of the transaction.

In the wake of the news, media analysts at investment bank Credit Suisse said a Sky Europe deal would have some “industrial logic”, although some investors may be disappointed that Fox was not considering a full takeover of BSkyB in the UK.

“Sky Europe could achieve synergies in set top box infrastructure, new product development, acquisition of sports and movie rights, original commissioned content, and central costs,” Credit Suisse noted. It estimates such pan-territory synergies would initially save a Sky Europe organisation about £300 million (US$506.2 million) a year.

If a deal to acquire the 21st Century stock went ahead, BSkyB would be obliged to make an offer for the publicly traded stock, which it would do without offering a premium.

Sky has created a committee composed of independent directors and excluding 21st Century Fox-affiliated directors to handle negotiations.

Brian Sullivan (right) leads Sky Deutschland as CEO.

According to the Bloomberg report, the deal under discussion would leave 21st Century Fox’s stake in BSkyB at its current level of 39%. Fox’s predecessor company News Corp was famously forced to abandon its attempt in 2011 to acquire full control of BSkyB in the wake of the UK phone hacking scandal.

According to a report in the Sunday Telegraph at the weekend, citing unnamed sources, UK media regulator Ofcom would likely block any deal to combine the three businesses that resulted in 21st Century Fox acquiring overall control of the UK pay TV operator.

According to the paper, a deal could be blocked despite Rupert Murdoch’s splitting up of his media empire into publishing and media arms – News Corp and 21st Century Fox respectively – as he remains in control of both companies.

21st Century Fox said in a statement: “Over the years we’ve had numerous internal discussions regarding the organizational and ownership structure of the European Sky-branded satellite platforms. From time to time these conversations have included BSkyB, however no agreement between the parties has ever been reached.”