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News Corp bid for Sky rejected as directors call for higher price

UK pay-TV operator BSkyB’s eight independent directors have said they would recommend a price of 800p (€9.66) a share for a takeover of the company by News Corp, valuing the company at £14bn, following a rejection of the media giant’s revised 700p a share offer to acquire the 61% of the company it doesn’t already own.

BSkyB’s share price hit 732p this morning after it emerged that News Corp made a bid last week of 675p a share for Sky, which was rejected by the independent directors as undervaluing the company. News Corp subsequently made a revised offer of 700p a share, valuing the 61% stake at £7.8bn. BSkyB said this proposal was still insufficient but called for talks to achieve “an agreed proposal for the mutual benefit of all shareholders”. The company said it was putting together a committee of independent and executive directors to exercise the powers of the board in relation to any further offer. The committee will have the power to regulate the attendance of directors connected with News Corp at meetings of the board.

“Recognising that an offer from News Corporation could be in the interests of BSkyB shareholders in the future, and that obtaining any necessary merger clearances would facilitate such an offer, BSkyB has agreed to co-operate with News Corporation in seeking those clearances from the relevant authorities,” the independent directors said in a statement.  

News Corp’s offer is seen by the board as deeply undervaluing the company.

Rumours of a possible News Corp takeover and delisting of Sky originally surfaced in March, when speculation that News was about to offer 735p a share boosted the pay-TV operator’s stock price. News Corp deputy chairman Chase Carey said in a statement, “We believe that this is the right time for BSkyB to become a wholly-owned part of News Corporation with its greater scale and broader geographic reach. For News Corporation, our proposal presents an opportunity to consolidate a core business with which we have been closely associated for over two decades.”

BSkyB and News Corp have entered into an agreement whereby the former has agreed not to request the Takeover Panel to issue a “put up or shut up” notice on News Corp in line with the City Code on Takeovers and Mergers and News Corp has agreed not to offer to acquire an interest in Sky’s shares or take action that would require it make a takeover without the consent of the independent directors within two months of receiving regulatory clearance. Any offer must win the support of 70% of Sky’s shareholders (including News Corp’s existing shares), up to five months following regulatory clearance. If News Corp fails to make an offer within five months of achieving regulatory approval for a merger up to December 31 2011, it will pay a fee of £38.5m to BSkyB.

BSkyB senior independent non-executive director Nicholas Ferguson said, “ Based on careful review and advice, it is the unanimous view of the Independent Directors that there is a significant gap between the proposal from News Corporation and the value of the company. We believe the company has a track record of very strong performance and excellent growth prospects. The management team will remain fully focused on its strategic and operational priorities, positioning the Company well to grow earnings and cash and increase returns for shareholders. The Independent Directors remain fully committed to acting in the interests of all shareholders and will continue to meet on a regular basis.”

Sky is being advised by Morgan Stanley and UBS Investment Bank.

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