NEW YORK (The Deal) -- Germany's Sky Deutschland Holding on Wednesday recommended minority shareholders reject a €2.5 billion ($3.2 billion) offer from British Sky Broadcasting Group plc, which agreed to buy the 57.4% held by its own largest shareholder, Twenty-First Century Fox (FOX) , in July as part of a wider $9 billion-plus plan to consolidate Fox's European pay-TV interests.
The Unterfoehring, Germany-based group's recommendation was based solely on price, with the company saying both its management and supervisory board largely "share the assessment by the bidder that BSkyB and Sky Deutschland ideally complement each other in the best interests of the company and its dedicated employees, and the remaining Sky Deutschland shareholders, as well as its other stakeholders."
But they said the €6.75-per-share offer "does not reflect the full potential and thus intrinsic value of Sky Deutschland's business." It cited analysts' valuations, including a JPMorgan Chase (JPM) target price of €10.00.
It said board members holding Sky Deutschland shares, including management board member and group CEO Brian Sullivan, and the supervisory board's Stefan Jentzsch and Harald Rosch, don't plan to accept the offer. The group's directors recommended other shareholders do the same, though said they "acknowledge that investors interested in realizing their investment in the short term or with reduced risk appetite may consider the offer price as adequate."
Sky Deutschland's take on the offer comes as little surprise and follows public criticism of the price from shareholders including Odey Asset Management, which owns about 8.9% and said that it won't be tendering its stake.
BSkyB, of Isleworth, England, has wavered little from the strategy it stated in May of launching a bid for its German affiliate without offering a premium. A person familiar with the situation on Wednesday reiterated that the British company won't raise its bid, even if it means having to content itself with the 57.4% stake it is buying from Twenty-First Century Fox. The offer to minority shareholders was a mandatory one and BSkyB has reserved the right to gradually buy up further shares on the market.
BSkyB would need 75% of Unterfoehring, Germany-based Sky Deutschland in order to get a so-called domination agreement and therefore access to Sky Deutschland's cash flow, though it said when it launched its offer that it doesn't plan to seek one. It also said it's not aiming to squeeze out shareholders that don't tender their stock.
The takeover of a majority of Sky Deutschland is a condition for BSkyB consummating its agreed purchase of 21st Century Fox's wholly owned Sky Italia Sarl. The transactions together would create a pan-European pay-TV company with 20 million subscribers, lift BSkyB's revenue from £7.6 billion to £11.2 billion, and increase its purchasing power for programming like Germany's Bundesliga soccer matches.
Sky Deutschland shares were little changed, at €6.738, by early afternoon in Germany on Wednesday. The Sky Deutschland tender will run until Oct. 5. BSkyB shareholders will meet on Oct. 6 to vote on the transaction.
BSkyB shares were up 0.5 pence in London, at 876.5 pence.
In reaching its assessment, Sky Deutschland took advice from Bank of America Merrill Lynch (BAC) which gave a fairness opinion on the BSkyB offer.
The transaction gained European Commission approval last week.