Friday, 8 July 2011

Smoke and mirrors: BSkyB, and The News of the World!

BSkyB @ 797p, -15p (-1.85%) as at 10:52am.

Wow, its to be hoped that the News of the World has made a lot of profit over the years as this could be an expensive mistake for Rupert Murdoch and News Corporation (in many respects they are seen as one and the same). 
On the face of it, the act of closing down the 168 year old paper does seem to be a desperate measure (albeit a decisive one), but the situation has quickly escalated to the point that many major brand names had withdrawn their advertising business and the stain had started to wash over News Corporation's share price as the story exploded in the US. That being the case the biggest worry would seem to have been that advertisers withdraw from all of News Corporations cross continental media ventures.
The paper would probably have still have sold papers though but it does go some way to illustrating that the readership is only an asset to sell to advertisers rather than the real revenue generator for the company. 
Perhaps they should have been paying the readership to read it all these years?

Anyway, the closure does go some way to illustrating the kind of ambition, and drive that is Rupert Murdoch with little sentiment for a paper that he purchased back in the sixties. He is obviously able to keep his eye on the prize that is BSkyB (see earlier post: BSkyB: week ahead and take-over musings).

The action might serve to placate the masses but there should still be questions of how deep does this culture run across the company's sister papers and the media industry. How many past employees have grown accustomed to these practices and are now spread across the corporation and industry with their questionable ethics and behaviours.
Has the News of the World really been closed down or will it just be a change of title such as The Sun on Sunday! That being the case then it might have been a cleverer, but much easier, and less dramatic decision that it first seems. 
Smoke and Mirrors!

Regardless of that it does look likely that the decision by Jeremy Hunt, Culture Secretary, on the Governments agreement to the merger will be delayed until the current furore dies down and the direct result of that speculation can be seen in BSkyB's share price which is down from recent highs of 850p where it was driven by expectation of a cleared bid path. 
Again, I am not sure that this would be for the right reasons other than to wait for the furore to die down less the already politically questionable decision be further tainted by this unethical affair.

The episode does add uncertainty to the merger and there is likely to additional political pressure to be considered as well as the postponed decision.

As with any investment it isn't without some risk (particularly in the ego bruising short term). "Panmure Gordon said the probability of the News International takeover of BSkyB going ahead has fallen below 50% from about 90%" ( Investors assess phone hacking damage ).
But, my view would be that if you are already in on BSkyB you should assess the downside and probably stick with it.

On the one hand many still think that the deal will go through which is still likely to yield a premium. That being the case 797p (cheaper than 850p) could still yield a nice reward for opportunism, some patience, and a cool head under the current spotlight.

On the other hand, if the deal doesn't go through (and the price falls back), the business is starting to turn into a cash cow so 797p might seem a distant cheap memory in a few years time once dividends are accounted for. 
Or thinking about it another way, Rupert Murdoch is nothing if not a hugely rich and successful businessman so, although you might get an initial rush from a £9, £10 or even an £11 takeover price, you need to understand that any price he is willing to pay for BSkyB is still likely to seem cheap to him over the longer term when set against the future profits he thinks it can generate!
He may have shown his sentimentality (or lack of it) with the closure of The News of the World so why is he after BSkyB if not for sentimental reasons. 
Could it be that he is "thinking like a rich man" and buying an income generating asset!

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