Nervous investors wipe pounds 1.4bn off value of BSkyB

Shares in BSkyB, the satellite broadcaster, plunged sharply yesterday, for the second day running, as the company's 40 per cent owner, Rupert Murdoch, confirmed plans to raise funds through a preference share issue convertible into BSkyB shares.

The stock dropped 36.5p yesterday to 596.5p, bringing the two-day decline to 82p - equal to pounds 1.4bn off the company's stock market value. Analysts said Mr Murdoch's plans to mortgage part of his BSkyB stake, revealed in yesterday's Independent, suggested he believed the shares had reached their likely high, and that it was an opportune time to raise fresh funds to finance his other global media ventures.

There were fears, too, that BSkyB still faced regulatory threats over its near-monopoly position in the UK pay-television market, a risk that the market had been largely discounting since the company was given what some analysts saw as an easy ride in a formal inquiry by the Office of Fair Trading early this year.

On Tuesday, Oftel, the telecoms regulator, ordered an end to a controversial marketing scheme launched by BSkyB and BT, under which satellite subscribers were given free BT phone calls.

Moreover, concerns over BSkyB's Premier League football contract, which is being reviewed by the Restrictive Practices Court, were also on the minds of some in the City.

Yesterday, the court agreed to extend its consideration of the contract to include the recent pounds 670m, five-year renewal, which covers all matches of the league of top football until 2000.

At the same time, Karl van Miert, the European Commission's competition director, appeared to question the validity of the contracts last night, when he told BBC Radio: "We are worried, and have a lot of questions which we need to sort out as rapidly as possible. We have to look into the deal and also the duration of the contract, the sub-licensing system, and eventually the dominant position one might acquire on the market."

The Competition Directorate in Brussels said last night, however, that any action by the Commission would await the outcome of considerations by regulators and the courts in the UK. In a statement, Mr van Miert added that there was as yet no formal investigation, but that the EC was engaged in a "monitoring exercise related to the overall phenomenon of exclusive television rights [for] sporting rights."

Analysts said weakness in the BSkyB shares was also linked to the lingering effects of Tuesday's announcement by Cable & Wireless, establishing a four-way merger with three cable companies and C&W's Mercury Communications subsidiary to form the first credible threat to BSkyB's dominance in the pay-television market.

However, the preference share issue was the main source of investor skittishness, analysts agreed.

News Corporation yesterday confirmed it would seek to raise $1bn-$2bn through exchangeable Trust Originated Preferred Securities, representing interests in debt securities and warrants to purchase ordinary shares or ADSs of BSkyB. Full details have yet to be revealed, although sources confirmed the issue would pay a rate of roughly 5 per cent over a term of 30 years, with a conversion date fixed at five years. Mr Murdoch's News America Holdings, which would issue the shares, would have the right to pay converting shareholders in cash rather than in BSkyB shares, thus protecting him from dilution. One analyst said: "Clearly Mr Murdoch is offering half the return in the form of the interest and the rest in the form of expected stock appreciation."