BSkyB in £5.3bn European expansion
7:56am Friday 25th July 2014 in © Press Association 2014
BSkyB bolstered its pay-TV empire today with the £5.3 billion takeover of sister companies in Italy and Germany.
The broadcaster's deal with 21st Century Fox, which is controlled by tycoon Rupert Murdoch, will see it buy all of Sky Italia for £2.45 billion and take a 57.4% interest in Sky Deutschland for £2.9 billion.
The enlarged company will serve 20 million customers and combines the leading pay TV businesses in three of Europe's four biggest markets.
The proceeds will boost 21st Century Fox in its pursuit of Time Warner after it failed with an offer worth 80 billion US dollars (£47 billion) earlier this month.
Twenty-First Century Fox, which will continue to own 39% of BSkyB, includes Fox News and the Fox network behind The Simpsons and Family Guy, as well as Hollywood studio 20th Century Fox, maker of the X-Men and Ice Age films.
The company was formed after Mr Murdoch split it away from the News Corp publishing firm, which controls The Sun, The Times and The Sunday Times, as well as the Wall Street Journal and New York Post.
BSkyB's European expansion was announced at the same time as it said annual operating profits dropped 5% to £1.26 billion due to investments in connected TV services and Premier League football rights.
It ended the year with 11.5 million customers, an increase of 342,000 over the year and 75,000 in the quarter. The company said it added a third more customers than in the previous year, its highest rate of growth in three years.
The company will also make an offer for the remaining shares in Sky Deutschland, bringing the total deal price to around £7 billion.
It believes that there is significant room for growth in the two countries as take-up of pay-TV services by households is much less advanced than in the UK and Ireland, where there is 53% penetration.
BSkyB chief executive Jeremy Darroch said: "The three Sky businesses are leaders in their home markets and will be even stronger together.
"By creating the new Sky, we will be able to use our collective strengths and expertise to serve customers better, grow faster and enhance returns."
Sky will finance the deal through the placing of new shares, as well as from debt and existing resources. Shares fell 4% today.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "Sky is clearly taking the strategic view that pay-TV, already ingrained in the US culture, will become prevalent in Europe.
"As such, it would be well positioned to benefit from this growth, given a customer base of the newly enlarged group approaching 20 million customers as a starting point."
Sky is facing increased competition from BT, which launched its own sport channels last August and has bought strong packages of Premier League and Champions League rights.
It is also up against movie and drama competition from internet streaming services such as Netflix and Amazon Prime.
BSkyB said its focus in the last year had been on driving take-up and usage of connected TV services.
The company connected three million Sky+HD boxes to broadband in the year, more than doubling its base of connected homes to 5.7 million, more than 50% of all Sky TV customers.
This roll-out drove a threefold increase in On Demand usage with its expanded box sets offering proving popular.
Overall, the company said it added 3.1 million paid-for products in the period, including services such as broadband and multiscreen. Revenues were 6.5% higher at £7.6 billion.
Mr Darroch added: "W e have delivered an excellent year of growth as customers responded in record numbers to the combination of high-quality TV and innovative new services."