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News Corporation’s purchase of a 14.58% stake in Premiere could be aimed at building a blocking stake in the German listed pay-TV company, media bankers and deal sources speculated this week, reports mergermarket.
News Corporation on Monday bought 14.58% of Premiere for EUR 287m from Unity Media at EUR 17.50 cash per share.
Bankers also said they thought the purchase could be a spoiling tactic by News Corp’s chairman and CEO Rupert Murdoch to deter would-be rival bidders, or even a precursor to a full bid.
Murdoch said in a press release: “We see enormous potential for growth in Germany and believe the time is right to invest in its foremost pay-TV business, Premiere.”
A source close to News Corp said the move follows interest from a number of other media players last year. He said it was “interesting” that the deal had been agreed while many investment bankers were on holiday.
A deal insider from the seller camp would not say if talks had taken place between Unity Media and other potential bidders. Press reports had linked the stake to many other companies, including Vivendi, Sogecable, Comcast, Kabel Deutschland, Axel Springer, ProSiebenSat.1 Media and Liberty Media.
German daily Boersen-Zeitung reported that Vivendi may launch an offer at EUR 18 per share for Premiere.
A sector banker not involved in the deal said: “Murdoch secured a minority stake in Premiere to knock out competitors without committing significant capital. He clearly has a masterplan.”
He speculated that the stake purchase could only be designed to avoid anyone else buying it or to prepare for a full takeover. “Whoever wants to take over Premiere has got to buy Murdoch’s newly acquired stake,” he said.
The deal insider speculated that News Corp could see a blocking stake of 25% or more in Premiere as a key threshold.
News Corp did not comment but the source close to the company admitted a blocking stake could be important to News Corp in the future. However, the current plan was to stick at 14.58%, even though this was probably not enough to impact Premiere’s strategy significantly, he said.
The sector banker said it was now highly unlikely that anyone else could acquire 75%, and even getting 50% would be more difficult. “If you look at the small attendance at the shareholder meetings: with this stake he might even have voting power within the 50% range,” he said.
The move echoes the purchase in 2006 of a 17.9% stake in ITV by BSkyB, News Corp’s 39% owned UK subsidiary. The move was publicly criticized by rival NTL/Virgin Media, which was rumoured to be considering a merger with ITV at the time. Intervention from the regulator resulted in a recommendation last month from the Competition Commission that BSkyB reduce its holding to 7.5% to avoid influencing ITV’s strategy and so harming competition.
Despite this finding, a second sector banker interviewed for this article said he thought 14.58% was not enough for News Corp to impact Premiere’s strategy in a significant way. The banker, who is also not involved in the deal, said he would not be surprising to see News Corp increase its stake in Premiere in the near future.
The second banker said it remained to be seen whether News Corp would go for a full bid, pointing out that the company seemed happy owning only 39% of BSkyB.
Whatever Murdoch’s plans he should act within months and not years, said the first sector banker. “It doesn’t make sense to own a minority stake which you have to drag along in your profit and loss account.”
A third banker not involved in the deal said Premiere is the only established pay TV provider in Germany. There is no space for more providers and this gives Premiere a unique position in the market, he said. “If Murdoch is interested, 15% is not enough and he would have to make a takeover offer. But it’s also possible that he waits for someone else to make a takeover offer and sells the stake at an interesting price,” he said.
The shares were bought from cable network operator Unity Media, whose pay-TV broadcaster Arena worked with Premiere for the broadcasting of Germany’s top football league, the Bundesliga. German antitrust authorities only approved that collaboration on condition that Unity Media does not vote its Premiere shares and that it sells them by the end of the 2008/2009 season.
The deal insider said News Corp offered a very attractive price and a significant upside, probably linked to the fact that it would be allowed to vote the shares. A spokesperson for News Corp said that it sees enormous potential in Germany and that as a stake became available, News Corp believed that it was the right time to take it.
Lehman Brothers acted as a financial advisor for News Corp. Hogan and Hartson acted as a legal advisor for News Corp while it is believed that Unity Media did not use any financial advisor and used Freshfields as a legal advisor.
Premiere shares were trading at EUR 15.50 on Wednesday.
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