LONDON (The Deal) -- The U.K.'s British Sky Broadcasting Group has sealed a deal to buy leading shareholder 21st Century Fox (FOX - Get Report) Italian and German pay-TV interests, creating a company with 20 million subscribers and handing £5.28 billion ($9 billion) in cash and assets to Rupert Murdoch's film and TV powerhouse as it weighs increasing its unsolicited $80 billion bid for Time Warner (TWX - Get Report).
After more than two months of discussions, BSkyB agreed to pay £2.07 billion plus a 21% stake in National Geographic Channel International valued at £382 million for 21st Century Fox's wholly owned Sky Italia. It will pay 21st Century Fox £2.9 billion for a 57.4% stake in separately listed Sky Deutschland and make a €6.75-per-share ($9.08) offer for the outstanding shares.
The transactions would lift BSkyB's revenue from £7.6 billion to £11.2 billion, increase its purchasing power for programming like Germany's Bundesliga soccer matches, and allow it eventually to bring quad-play services to a pan-European audience. BSkyB shareholders, accustomed to regular share buybacks, had earlier express skepticism about the plans and worries that the U.K. group would end up paying too much for Sky Italia.
The Isleworth, England buyer on Friday surprised investors by announcing a share placement equivalent to 9.99% of its pre-issue capital. It said on Friday afternoon it raised £1.36 billion before expenses and sold the shares at 870 pence. BSkyB shares were down 5.4%, at 875 pence.
The potential to expand in Germany is a "huge market opportunity," said Peel Hunt's Alex DeGroote, noting that Sky Deutschland is only one-sixth of the size of BSkyB and that pay-TV penetration in Germany remains low. But, he added: "Make no mistake, this is a very long-term bet and I wouldn't underestimate the complexity of putting these businesses together."