BSkyB has just lost its appeal against a Competition Commission ruling that it must cut its stake in ITV from 17.5% to less than 7.5% - which could mean a £500m+ loss when it sells up. Generally speaking, that would count as pretty rotten news. However, on the (Sky) plus side, the satellite broadcaster has already written down the value of its stake by over £800m – and the delay caused by all this legal chicanery has given ITV’s share price a chance to recover. So if it does have to sell the shares this year, it might actually result in a £150m boost to Sky's bottom line...
Sky continues to insist that the acquisition was a long-strategic move, not a defensive one to block the Virgin/ ITV tie-up, but nobody outside its Isleworth HQ seems to be buying it. The appeal court judges said today... well, lots of legalese, but the basic point was that they agreed it was inappropriate for Sky to have so much influence over ITV strategy. So the Competition Commission ruling that Sky must cut its stake below the 7.5% mark will stand. But it's not over yet; apparently Sky may yet take its case to the Supreme Court - and if that fails (which lawyers seem to think it will) see if Brussels wants to stick its oar in.
Of course if Sky is eventually forced to sell the stake, its decision to buy will have to go down as a pretty disastrous one, at least financially. Sky bought the 17.9% stake for 135p-a-share or £940m back in 2006. Based on ITV’s closing share price last night, it’s now worth about £400m – so as and when Sky is forced to sell up, it’s likely to lose over half its money. That's not a great investment, by any normal standards.
But it’s not all bad news for Sky. When the original ruling was made, ITV’s share price had fallen to 41p (it later went as low as 17.5p). This legal argy-bargy has given it a chance to recover to about 58p; so however much Sky has paid its lawyers, it’s probably less than the money this delay has saved it.
What’s more, it’s already slashed the value of the stake in its accounts by £616m in 2008, plus another £191m last year. It now values the shares at 20p each - so if does have to sell up this year (and now ITV seems to be stabilising, buyers are already sniffing around), it will get a much better price than that. So if (say) it sells just enough of the shares to get down below 7.5%, it could end up with an exceptional gain of about £150m in this year's P&L. An accounting technicality, you might argue - but the point is that the future financial impact is almost certainly going to be positive.
And either way, James Murdoch might argue that it was a price worth paying to stop ITV and Virgin Media hooking up. Not that this was the intention, of course.
In today's bulletin:
BSkyB loses ITV appeal - but could see £150m gain
Morrisons outstrips rivals at Christmas - but still no CEO
Britain's top bosses see pay rise below national average
Lady Geek: Technology can help you keep your identity
Do it right: Eight ways to strike out on your own