Sky's numbers cloudy which is why City is so keen on Murdoch's bid
Because the satellite broadcaster is a media company, the national interest, for once, comes into play
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Your support makes all the difference.When it comes to Sky, the interests of its shareholders and the interests of the nation are in conflict.
The company, which Rupert Murdoch's 21st Century Fox is trying to buy, has just released its results for the year ending June 30 and there are, unusually, some clouds rumbling.
The group said 11.5 per cent of its customers quit over the past year in the UK and Ireland, compared to 11.2 per cent the year before. That level of “churn” is quite a bit higher it would like.
Operating profits fell by 6 per cent to £1.47bn, after the company absorbed £629m of costs related to its mammoth Premiership football rights deal, when it looked very much like it was bidding against itself.
The overseas businesses did ok, but analysts at Jefferies noted some revenue weakness in Italy, which they expected, and also some in Germany, which they did not.
Liberum analyst Ian Whittaker said that the customer numbers "don’t look good". In his view, the shares are being supported by the bid, and he's far from alone in that.
The City wants it to happen. Sky is an appallingly good business, but there are questions over whether it can keep up the pace, particularly in the current economic environment. Britain is in the midst of an income squeeze, with wages failing to keep pace with inflation. Premiership football is increasingly expensive to watch and people may decide that the price is too high.
Sky still throws off cash likes it's going out of fashion, but the shares will be due a steep fall if Culture Secretary Karen Bradley blocks the bid.
An awful lot of people think she should.
The Murdoch family have huge interests in the UK's media through the newspapers (now spun off into a separate company), their websites, and their existing Sky shareholding. As such they are able to exert an outsized, and sometimes unhealthy, influence over the life of the nation.
OfCom, when it looked at the bid, concluded that Fox was a suitable owner for Sky, despite the harassment scandals at its conservative US news channel, and the phone hacking scandal at the News of the World.
A lot of people beg to differ, notably Avaaz, the campaigning organisation which is threatening legal action.
The media watchdog did question the bid on grounds of media plurality, as well it might.
But Culture Secretary Karen Bradley continues to dither over what to do about that.
She says she’s minded to get the Competition & Markets Authority involved, and would clearly like for someone to relive her of a nasty headache. But in the absence of an early General Election, that isn’t going to happen. Sooner or later she’s going to have to make a decision and live with the consequences.
Whatever she does, she's going to make a lot of powerful people very unhappy.
Jeffries thinks the shares are pricing in the chance of the bid failing at 40 per cent. That looks about right.
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