News Corp’s Bid For BskyB Could Resurface After Younger Murdoch’s Exit

Rupert Murdoch’s son James Murdoch has resigned as the chairman of BskyB. ^[1] While this is a result of the mounting pressure due to the phone hacking scandal in the U.K. that has been haunting News Corp (NASDAQ:NWS) for the past year, it could also open up the passage for renewing talks with BSkyB concerning News Corp’s intent of acquiring it.

Last year, News Corp had to drop its $12.6 billion bid for BskyB as a result of the phone hacking scandal which prompted the U.K. government to block the deal. ^[2] Control of BskyB can give News Corp a significant presence in U.K.’s pay-TV market, rebuild its tarnished image and expand into the growing streaming business. News Corp competes with other media giants such as Disney (NYSE:DIS), Time Warner (NYSE:TWX), Viacom (NASDAQ:VIA) and CBS (NYSE:CBS).

See our complete analysis for News Corp

BskyB had about 10 million subscribers in 2011, which is a significant amount when seen in context of U.K.’s pay-TV households. BskyB has a significant presence and controls the content rights of almost all major movie studios.

Given that television is News Corp’s major business, contributing more than 50% to its value according to our estimates, it makes sense for the company to expand its television business presence in foreign markets. This will not only help it diversify its risk but also reduce dependence on news papers which are on a decline. Although it must be noted that newspaper business is relatively small for News Corp,. contributing a little over 10% to its value.

As Netflix (NASDAQ:NFLX) is expanding in U.K., BskyB is preparing to counter the expansion with its own subscription streaming offering. There is incentive for News Corp to fuel this effort and gain its own presence in the streaming market.

Our price estimate for News Corp stands at $23.10, implying a premium of about 15% to the current market price.

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1. Murdoch BSkyB Exit Could Presage A Renewed News Corp. Bid, Bloomberg, Apr 4 2012 [↩]
2. Murdoch’s Digital Ambitions for BSkyB Thwarted by Phone-Hacking at Tabloid, Bloomberg, July 14 2011 [↩]