BSkyB has finally bowed to the inevitable and flogged around 10% of its stake in broadcaster ITV, for £196m – thus bringing to an end a two-year legal wrangle (much to the chagrin of competition lawyers, no doubt). You have to say the whole episode has been a disaster for Sky financially: it’s lost about £350m on the shares, all told. On the plus side, at least the NTL merger didn't happen. Equally, the legal delay helped Sky get a higher price – and because it’s already written off the value of its holding, this sale will show up as a big one-off profit in its annual accounts. And given that it's kept a stake of about 7.5%, it will still have plenty of opportunity to stick its oar in…
Sky announced that it had flogged 404m shares – equivalent to 10.4% of ITV – at 48.5p a share to Morgan Stanley, which in turn has flogged them on to institutional investors (though we don't know who - ITV will hope it's someone friendly). Given that Sky paid 135p for the shares back in November 2006 (to block a merger with N— sorry, to become a strategic investor), that’s a pretty big financial hit. Although it could have been worse: at one point ITV’s share price plummeted as low as 20p, so stringing out the appeal process for all this time has actually saved Sky quite a lot of money. Who said expensive lawyers weren’t worth it?
Of course, ever since the Competition Commission came out in opposition to Sky owning such a substantial chunk of ITV, this outcome was always the most likely. Even Sky recognised this, writing down the value of its stake by £616m in 2008, and another £191m last year. This has two obvious benefits: one, it meant they took the big hit in a year already affected by the recession, when everyone was struggling. And two, any money they did make on the eventual sale – as it turns out, almost £200m – would go straight to the bottom line. The same goes for any increase in the value of its remaining 7.5% stake, since it has already been written down to zero on Sky’s books. God bless accountants.
And this seems to us to be a key point: Sky may no longer have a near 18% stake, but a holding of 7.5% still makes it an influential voice around the boardroom table. The good news for chairman Archie Norman and CEO Adam Crozier is that all their interests are now aligned – a big hike in the share price and everyone’s a winner. In fact, according to our (possibly shonky) maths, if Crozier somehow manages to get the share price up to about £2.65, Sky might even make all its money back...
In today's bulletin:
Sterling pounded as euro plummets and deficit widens
Snow blamed for 'awful' January sales
BSkyB swallows £350m loss on ITV stake
Graduate jobs down just 9% in 2009
The value of battle-scarred execs