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British Sky Broadcasting’s swoop on ITV’s shares changed the UK media landscape in a matter of hours on Friday, with profound consequences for rivals, shareholders and regulators. The full consequences may take months to play out. Here is a guide to some of the implications for the key constituents.

BSkyB

BSkyB’s stake in ITV opens up a range of options, but also exposes the satellite broadcaster to attack by critics claiming it is seeking undue influence.

In theory, it could use ITV1 to promote Sky’s services or seek better terms on programming from ITV Production. However, BSkyB has painted its stake as a purely financial investment, arguing that there is value in ITV under new leadership.

Competition concerns will make it harder to explain the strategic benefits of the move, which has probably foiled NTL’s efforts to build a stronger rival. Although BSkyB says it will be a long-term investor, it now also has the option to trade the stake in return for Five, the UK channel owned by RTL, another ITV suitor.

BSkyB has diverted almost £1bn that investors had thought was earmarked for its new broadband service. It will now have to convince them that the investment makes sense.

James Murdoch

BSkyB’s chief executive has made a big personal gamble. His strike on ITV is the 33-year-old’s most controversial move since becoming chief executive three years ago.

The move invited comparisons with his father, Rupert, a master media tactician, who only a month before had built up a similar blocking stake in John Fairfax to ensure he had a pivotal role in the liberalisation of Australia’s media industry.

James Murdoch, the younger son but already the one most likely to succeed his father, will now have to prove that he has his father’s stomach for a fight, as much as his eye for an opportunity to frustrate his rivals.

Sir Richard Branson

Virgin insiders are describing their planned response to Sky’s move as a new battle in the same vein as Sir Richard’s historic feuds with British Airways.

NTL’s largest shareholder, who was on a Virgin flight to South Africa when news of Sky’s move broke, thought that he was on the verge of satisfying his 15-year ambition of owning a UK television station.

Now boiling with anger, he is vowing to pursue every legal and regulatory avenue. His talent for publicity will ensure that this battle will be fought in the full glare of the television cameras he would love to own.

NTL

As NTL insiders watched their carefully-laid plans to take over ITV blown apart on Friday evening, their only consolation was that BSkyB’s interest was a backhanded compliment to their own strategy.

The cable company had lined up an impressive management team and had made progress on restructuring its debts to allow it to take on another £6bn commitment.

Now, even if it puts its bid to other ITV shareholders, its rival would hold a large enough stake to prevent it from consolidating ITV. Instead, it is likely to fight BSkyB’s move through regulators.

The 5 per cent rise in NTL’s shares on Friday afternoon signalled that many of its investors would rather its deal failed. Some also hope that NTL will become a more digestible morsel for the private equity firms that circled it earlier this year.

ITV

When Sir Peter Burt, ITV’s chairman, met shareholders recently, he told them that the search for a new chief executive had been taking time as they were looking for someone with the “strategic vision of Rupert Murdoch”.

Now, with Mr Murdoch as its largest shareholder, ITV is having to avoid picking sides, while quietly exploring the regulatory and legal implications.

Sir Peter and his fellow directors have to be seen to be acting in the interests of all shareholders, not least because the board has struggled to regain credibility since rejecting a private equity approach earlier this year, prompting a slide in the shares.

Sir Peter, who always seemed happier on Muirfield golf course or the grouse moor, signalled this autumn that he wanted out. The sudden emergence of Mr Murdoch on his shareholder register will have Scotland’s game birds sleeping easier.

ITV CEO candidates

Candidates for ITV’s chief executive post have already faced uncertainty due to the slow search process and the possibility that the broadcaster could become a bid target. That became a reality when NTL approached ITV earlier this month, prompting RTL, the European broadcaster, and KKR, the private equity group, to examine joining the fray.

BSkyB’s move and its comments that it will support the board in the search for a chief executive may inject a sense of certainty to the job. However, candidates will now have to consider how they feel about the Murdochs looming in the background.

RTL

Europe’s largest broadcaster had not even made its interest in ITV public before the odds on it realising its UK ambitions changed dramatically.

The group was lining up private equity backing from Kohlberg Kravis Roberts but was already nervous about the price it would have to pay. Now that price appears to have gone up.

RTL’s best hope is that BSkyB’s real motive was only to frustrate NTL and would be willing to negotiate with a less direct competitor. In theory, RTL could then sell Five, its UK channel, to BSkyB in return for the stake. With ITV’s newest investor claiming it is a long-term shareholder, however, RTL and its financiers may have to wait some time.

Regulators

The Enterprise Act covers cases where control is deemed to have changed or could be changed by the “material influence” of one shareholder over the commercial decisions of another enterprise. The Office of Fair Trading may examine a case where a shareholding of 15 per cent or more may allow one company to control another.

Virgin is pointing to BSkyB’s attempt to buy Manchester United in the late 1990s, when it was forced to cut its 29 per cent stake to less than 10 per cent for fear that it might influence future football rights negotiations. However, BSkyB insists that its latest move is not a takeover and it is not seeking influence over ITV.

Ofcom, meanwhile, will on Monday start its review of BSkyB’s stake-building. If it deems that this constitutes a change of control, Alastair Darling, trade and industry secretary, will decide whether Ofcom should conduct a public interest test.

Fidelity

James Murdoch’s move has enabled Fidelity, formerly ITV’s largest shareholder, to cash out of the the sixth largest investment in its special situation fund.

Ever since 2003, when it ousted Michael Green as chairman-designate of ITV, Fidelity has sat uncomfortably as ITV’s largest shareholder. Continuing concerns over falling audiences and faltering advertising figures prompted it to cut its stake this year from 15 per cent to 11.5 per cent.

BSkyB’s 135p offer is lower than where ITV started trading at 142p in 2004, but Fidelity has owned shares in Carlton and Granada for a long time and is expected to have made a large profit.

Other shareholders

Many of ITV’s smaller shareholders, who were not offered 135p for their holdings, are going to be peeved. They will also be concerned that they may have missed out on a hoped-for bid premium if BSkyB uses its stake to prevent others from taking over ITV.

Shareholders in BSkyB, meanwhile, seem split over the move. Critics are describing the stake as an expensive investment in a declining asset, but other investors are acknowledging the strategic merits of scuppering a deal which could have made NTL a stronger competitor. One BSkyB investor said: “They know what they are doing and are taking a long term view.”

Morgan Stanley

Other investment bankers flew to New York last week, looking for a piece of what Merrill Lynch analysts estimated could be a $430m (£227m) fee bonanza from NTL’s refinancing.

Some of Morgan Stanley’s most senior deal-makers, who were supposed to be in Barcelona for the bank’s telecoms, media and technology conference, stayed home instead to plot a daring raid for one of its newest clients.

BSkyB, which had switched brokers from Deutsche not long before, instructed Morgan Stanley after a late board meeting on Thursday.

Its brokers made calls to more than 15 institutional investors, without a word leaking out and without ITV’s share price moving by more than a penny.

Copyright The Financial Times Limited 2017. All rights reserved.
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