Keep Fox out of the coop
T HE creation of Sky with its UK customer base of 11.5m paid subscribers and its reach in the German and Italian pay TV markets has been a triumph for British technology and has bolstered the country’s reputation for creative and independent news programming.
Along with ARM Holdings (now owned by Japan’s Softbank) and Vodafone, it is one of the few world class high-tech companies to break out of the pack and join the elite on the FTSE 100. This is partly because of the willpower of Rupert Murdoch and his family which saw off the initial challenge of British Satellite Broadcasting and invested in the best technology kit rather than distribute all gains in dividends.
Nevertheless, minority investors, corporate governance mavens and the defenders of media plurality have good reason to treat the £10.75-a-share offer from 21st Century Fox (worth £18.5bn) with a long spoon.
The offer, revealed late on Friday, was greeted like the relief of Mafeking by some Sky shareholders and in parts of the media.
But the 40pc premium to the price on December 6 is not all it seems. The 5pc rise in Sky shares ahead of Friday’s bid means the premium was closer to 35pc rather than 40pc. A 15pc fall in sterling since June 23 reduces the cost of the premium to Fox to 20pc.
The fall in Sky shares in 2016 means in fact that much of the premium is negligible. Moreover, under the 2014 deal in which Sky bought out the minority shareholding in Sky Deutschland and Sky Italia, 21st Century Fox collected £4.9bn cash. This effectively was a rights issue intended to help fund an offer for Time Warner. That same cash stumped up by Sky investors is now being used to help fund the £11.1bn which Fox must find to buy up the 61pc stake.
Sky’s minority investors partly are being bought out with their own money.
The circular nature of all this is made possible by the peculiar governance of the Murdoch empire. For reasons beyond comprehension, James Murdoch returned as chair of the Sky board in April of this year having put a safe time and geographical distance between his previous role at News Corp after the phone-hacking scandal. Rightly, minority shareholders didn’t much like the return of the prodigal son who, in the meantime, had become chief executive of 21st Century Fox where the Murdoch family owns 10pc of the equity but has 40pc of the vote.
When investors voted in July more than 50pc rejected the return of the younger Murdoch. In spite of a decisive rejection ‘independent’ directors led by Martin Gilbert of Aberdeen did not challenge the appointment but went along. Now the same supine bunch ( See Page 67) has rushed into acceptance of the 21st Century Fox offer as if the bidder was offering frankincense and myrrh.
Irrespective of Gilbert’s reputation as one of the City’s more robust figures, the deal raises questions as to whether the non-executives have been firm enough in their resolve.
Away from the intricacies of price and governance, a decisive issue is likely to be media ownership. Last time it was the opposition of then Business Secretary Vince Cable and eventually the Coalition government which kept News Corp at bay. We are supposed to believe everything is different this time.
It is hard, however, to conclude that 21st Century Fox is any more acceptable as a buyer than old News Corp before. To all intents and purposes the leadership of 21st Century Fox and new News Corp is the same, with Rupert Murdoch and the family votes and shareholdings all but identical.
The arguments, then, boil down to changes in the media landscape. The internet, we are told, is the second largest source of news. Together with convergence as represented by AT&T’s bid for Time Warner, BT’s entry into the TV market has changed everything.
Maybe, but the AT&T deal could yet be blocked. The proposed merger of CBS and Viacom has been abandoned. And Facebook et al are under fire for ‘fake news’.
Moreover, the closure of the News Of The World has not resolved the ethical taint. News International in Britain is still involved in civil suits related to the antics of the ‘Fake Sheik’. There must also be concern that under Fox control Sky News will be politicised in the manner of rabidly Right-wing Fox News in the US.
Theresa May’s government should lose no time and seek an Ofcom review. It would be surprising if the European competition commissioner didn’t want to take a look too. The suggestion is that Fox will seek to rush through the deal with a court sponsored Scheme of Arrangement. That should be halted. Bad scan STILL on the topic of foreign takeovers, the latest UK tech firm looking to wave farewell to these shores is E2V Technologies heading into the hands of California-based Teledyne. As always the premium looks too good to be resisted. Britain’s post-Brexit prospects depend heavily on the UK’s high-tech excellence.
Allowing a company responsible, among other things, for the magnetrons used in 90pc of the world’s radiology treatments to march of into the sunset without scrutiny would be derelict.