Rupert Murdoch is planning a form of takeover for Sky that would make it easier for his 21st Century Fox group to squeeze out shareholders opposed to the £11.2bn deal.
Advisers on the transaction between Sky and Fox, which is expected to lodge an official bid later this week, are pursuing a so-called “scheme of arrangement”. This tactic, which requires Sky to gain approval from investors representing 75% of the voting rights, will ensure that all shareholders against the deal are forced to sell once the threshold is reached.
Fox owns 39.14% of Sky and has 37.19% of voteable shares, but under a scheme of arrangement it is not allowed to cast its votes. The 75% approval threshold must be met by votes from non-Fox shareholders.Sky has a significant shareholder base that is disgruntled with elements of Fox’s management of the business. In October, more than 50% of Sky’s independent shareholders voted against James Murdoch’s reappointment as chairman. Murdoch was approved by 71.55% of total shareholders when Fox’s voting power was included.
Under a straightforward takeover bid for Sky, Fox could be left with an activist minority shareholder base in the pay-TV broadcaster if less than 90% of Sky’s investors accepted its bid.
A conventional bid would require backing from 50% of the shareholder base for Fox to take legal control, but in order to take full control of the shares and force all investors to sell would require 90% backing – much higher than the scheme of arrangement’s 75%.
Legal experts say getting stuck below the 90% threshold with a conventional offer could leave Fox with numerous problems, including potentially preventing Sky from taking its shares off the London Stock Exchange and becoming a fully private business.
Rupert Murdoch is also facing calls to increase his £11.2bn offer for Sky from investors, who are also raising questions about the boardroom structure of the broadcaster. Murdoch’s 21st Century Fox film and television group stunned the City on Friday by announcing it had clinched the agreement of Sky for the bid of £10.75 cash per share.
Some investors said over the weekend the price – at a 40% premium to the level the shares were trading before the offer was announced – was too low.
Thomas Moore, investment director of UK equities at Standard Life Investments, added to the concerns on Monday. He said: “We’ve got to represent the interests of our clients and our view would be no, this isn’t a good deal.”
He pointed out that the Sky share price was at a level it had been trading at only a few months ago, since when the the largest pay-TV broadcaster in Britain has been setting out ways to bolster returns to shareholders.
Speaking to BBC Radio 4’s Today programme on Monday, Moore added: “The share price clearly was at a low ebb on Friday when the bid was rumoured and, of course, we would be expecting a full value and the question is whether the board is independent enough to represent the interest of all shareholders, not just the 40% that is owned by 21st Century Fox.”
The boardroom composition of Sky was also raised by other investors. Sky has attempted to address this by setting up an independent committee of the board to review the offer from 21st Century Fox. The committee is being chaired by an existing board member, Martin Gilbert, who is chief executive of Aberdeen Asset Management, which owns a stake in Sky. Moore said he hoped Gilbert would step up and put forward a strong case” that the bid undervalued the true value of the company.
Piers Hillier, chief investment officer at Royal London Asset Management, another Sky shareholder, said: “It would have been preferable to have an independent chairman. The creation of an independent committee of the board (excluding James Murdoch) to consider the bid addresses some of the conflicts of interest, however it doesn’t go far enough.”
Murdoch has had hopes of unifying the two business empires for years. In 2011, he abandoned his News Corporation’s £8bn bid for BSkyB after public outcry over phone hacking. Since then, the businesses have been restructured. News Corp houses the newspapers, such as the Sun and the Times, and 21st Century Fox businesses such Fox News. Sky owns TV and film assets as well as pay-TV operations in Italy and Germany.
Roddy Davidson of stockbroker Shore Capital said the price was credible. But, he added, this still might not stop “pushback” from shareholders.
Analysts at global equity research firm Jefferies said the deal may be able to overcome any concerns from Britain’s media regulator. “Ofcom’s historical reservations about media plurality seem less credible now with more fragmented landscapes of news distribution and TV, also the split of legacy News Corp TV and press interests,” they said.
The culture secretary, Karen Bradley, has 10 working days from being notified of a formal bid to notify the regulator that an investigation should be launched.
“The [culture] department is putting in place procedures to ensure that her decision making process is scrupulously fair and impartial should a decision be necessary,” Matt Hancock, minister for digital and culture, told the Commons on Monday. “The role of the secretary of state here is a quasi-judicial one and it is important that she acts independently and is not subject to improper influence.”
Hancock added that guidance is being drawn up for ministers and officials for dealing with interested parties in the bid.
Sky said in a statement: “The company recently launched its mobile offering and less than two months ago held an investor day that gave investors a comprehensive insight in to the company and its growth plans – the market took a view and fully priced in these opportunities prior to the possible offer.
“The independent directors are highly experienced and respected individuals who know their fiduciary responsibilities.
“If a bid at this level is forthcoming, shareholders themselves will have the opportunity to accept a price which reflects a 40% premium or they can chose to continue to hold their stock.”
[Source:- Gurdian]