Will the Murdochs reach for Sky again?

Ambiguous comments from the Fox chief executive over the fate of the media dynasty’s stake in the broadcaster has ignited speculation that it will either launch another takeover bid – or sell up completely

James Murdoch speaks to students in Florence on Monday (Bloomberg Finance)

James Murdoch is nothing if not a tease. The annointed heir to father Rupert’s media empire set City tongues wagging this week in his first interview as the new chief executive of the US film and television giant 21st Century Fox.

The fate of Fox’s 39 per cent stake in the satellite broadcaster Sky – whose forerunner, BSkyB, was once run by James Murdoch – is a perennial subject of speculation among company watchers, and mired in the sort of politics and animus that only the Murdochs can inspire. Will Fox buy the rest of Sky or sell its holding, worth £7.3bn and granting effective control of the company?

Using the unlikely medium of The Hollywood Reporter, Mr Murdoch mused: “We’ve been clear that, over time, having 40 per cent of an unconsolidated asset is not an end state that is natural for us.” The delphic comments were interpreted bullishly, but in reality give little hint on his strategy.

Experts say that a Conservative Government could look favourably on a new bid. But would the Murdoch clan really have the stomach for another shot at Sky, with the events of five years ago still reverberating on the UK media scene?

To recap, News Corporation, another part of the Murdoch empire, made two bids to buy the rest of BSkyB in the summer of 2010, but the then business secretary Vince Cable intervened and referred the deal to the regulator, amid worries over the Murdochs taking too big a grip on the British media. Then Mr Cable himself was stripped of his role in deciding on the deal when he told two undercover reporters he had “declared war” on Rupert Murdoch.

News Corporation spun off Sky News to address media plurality concerns, but a week before the Culture Secretary Jeremy Hunt was due to wave through the deal in July 2011, the phone-hacking scandal broke and News Corporation – under fire from all sides – abandoned the bid.

It was split into two companies: 21st Century Fox, and “new” News Corp, which owns newspapers such as The Sun and The Times.

Clearly, even five years on, another manoeuvre by the Murdochs will have sensitivities well beyond the corporate scene. No wonder, then, that James told The Hollywood Reporter “there are no plans on the agenda right now”.

Indeed, when Fox has looked at buying, it has been focused on the US. It was rebuffed in a $80bn (£52bn) attempt last year to buy Time Warner, the owner of HBO and Warner Bros. The deal would have created a media behemoth with huge clout among the cable operators distributing its shows, as well as a sports broadcasting giant with big footprints in Asia, Europe and Latin America.

But where Fox has been active in Europe recently, it has been selling – and selling to Sky. Last year it landed £5bn by selling its controlling stake in Sky Deutschland and the wholly owned Sky Italia business to BSkyB, which then dropped the “British” and “Broadcasting” from its name to reflect its growing status as a pan-European pay-TV powerhouse.

City analysts believe Fox will offload the Sky stake before long. That’s because the company is trading in a much tougher UK market than five years ago. BT is now a big player in football, holding Champions League and Premier League rights, and the cost of those sports auctions is going up: the Premier rights alone cost £5.1bn this year. Average revenue per user, meanwhile– a figure closely watched in the City – is flat at £47. Additionally, the likes of Disney are increasingly bypassing pay-TV companies; only this week the entertainment giant launched its own UK streaming service, with shows and music heading straight to viewers’ tablets for £10 a month.

The Berenberg bank analyst Sarah Simon said: “We think Fox are much more likely to sell their stake in Sky than buy the rest of the company. Having sold their German and Italian businesses last summer – particularly Germany, the jewel in the crown – why would they buy them back at a premium? The UK landscape is different, because five years ago BT hadn’t bought football rights. Sky is holding its own but at the expense of lower prices.

“In the US, investors distrust pay TV now that content producers can go directly to consumers. If Fox sold its stake in Sky, we think the shares would rerate. Fox investors are pushing for this.”

Other experts agree that Fox would be reluctant to overpay for Sky. One analyst said: “The shares are trading at 18 times this year’s earnings, compared with BT at 14.5. The point is that the underlying momentum of the business is not strong enough to justify paying today’s multiple, let alone a premium on top.”

Earlier this year, rumour had it that the Murdochs were in informal talks with the French media giant Vivendi as well as Vodafone over a sale of the stake, but the talks foundered because the family demanded £18 a share – rich-looking given its share price of 1,092p. Other options include spinning it off as a dividend to shareholders, if they can avoid a huge tax bill in the process.

The Murdochs’ association with UK satellite TV stretches all the way to the founding of Sky 25 years ago. It looks far from certain that they will be around for another 25.