October 21, 2005 8:55 am

Murdoch to take BSkyB online with Easynet offer

BSkyB made a recommended cash offer for Easynet, the internet provider, on Friday for £211m ($374.9m), in a deal that will see it expand the range of media services it offers to include broadband and telephone calls.

The offer of 175p a share is a premium of 38 per cent on the Easynet share price on Thursday and about 81 per cent on the closing price on October 14, when rumours of a deal surfaced. The two sides were said to be in advanced discussions last weekend.

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BSkyB, which has paid about £60m more than previously expected, said it was looking for an established player that would allow it to offer a range of new services to its customers and compete head-on with the “triple-play” on offer from cable providers, such as the recently merged NTL and Telewest, that bundle together telephone calls, broadband and television.

“Today’s offer reflects the exciting opportunities that now exist to combine quality entertainment with significant high-speed connections,” said James Murdoch, BSkyB chief executive.

“Easynet’s innovative network and technological expertise perfectly complement Sky’s strengths in programming and in making technologies easy to use,” he added. “Consumption patterns are changing rapidly and we feel this combination does it all.”

The Easynet board, which was advised by ABN-Amro, unanimously approved the deal and BSkyB has received irrevocable undertakings from management and other shareholders accounting for 15.9 per cent of the issued share capital.

“This is a great opportunity to accelerate Easynet’s local loop footprint, capture market share for next generation broadband services,” said David Rowe, Easynet chief executive.

BSkyB’s marketplace has changed radically since Mr Murdoch took charge. The company now has 7.8m subscribers of whom about 48 per cent already have a broadband connection. Mr Murdoch said the deal would allow BSkyB to improve its exisiting service and expand into new services such as internet telephony, known as voice over internet protocol (VoIP), and broadband television.

However BSkyB’s new venture could face risks from more aggressive competition from the merged cable companies, which already have 3.3m customers, a faster roll-out of BT’s video-on-demand service than expected, and the prospect that customers will opt for Freeview’s digital offering rather than BSkyB’s broader but more expensive packages.

Jonathan Groocock, analyst at Oriel Securities, said the deal “brings a whole new competitive dynamic to the UK telco landscape” and incumbent players such as BT may suffer from the increased competition.

Easynet has a strong presence in the broadband market, which has grown 86 per cent in the last 12 months. It has positions in 232 unbundled local exchanges and Mr Murdoch said there were plans to expand this to more than 1000.

BSkyB was advised on the deal by Lazard and Morgan Stanley.

In early trade, BSkyB shares were down 1p at 518p, while Easynet shares jumped 36 per cent to 172½p .

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