Sterling's gain adds $700m to cost of Murdoch's bid for full control of BSkyB

RUPERT MURDOCH’S bid for the rest of British Sky Broadcasting Group has become $700 million (€545.6 million) more expensive after the pound’s 6 per cent gain against the dollar.

News Corp’s £7.8 billion (€9.47 billion) bid for full control of Britain’s biggest pay-TV operator, dismissed by some investors as too little, was worth $11.5 billion when it was announced on June 15th. It is now valued at about $12.2 billion.

For News Corp the cost in dollar terms may continue to climb, limiting its ability to raise the offer.

“It may make it more of a challenge for News to get to a price that we and most of the market feel they need to pay,” said Nick Bell, an analyst with Jefferies International in London. “It has been a very material rise since the deal was announced.”

Mr Murdoch, chief executive officer of News Corp, wants full control of BSkyB to gain from its steady subscription business. He also has his sights set on the British broadcaster’s cash flow, which increased 23 per cent in the year ended June 30th to £626 million as it reaped the rewards of investments in broadband and high-definition television.

The companies failed to agree on a price for 61 per cent of BSkyB that News Corp doesn’t already own and said they will focus on gaining regulatory approval first.

News Corp, based in New York, doesn’t hedge its investments in foreign operations, according to its US regulatory filings. In an August 6th filing, the company said that potential fluctuations in the pound may affect the amount of cash needed for the BSkyB deal.

The British currency traded at a six-month high against the dollar on August 6th. One pound now buys $1.5658, up from $1.48 in June.

“Sterling may continue to do well,” said Audrey Childe- Freeman, a senior currency strategist. “The UK is a little ahead of the US when trying to deal with the big-debt predicament.”

According to Bloomberg’s survey of 32 analysts, the pound may buy as much as $1.68 by the end of the first quarter of 2011. The median estimate is for $1.52.

The pound’s strength also means News Corp will book greater BSkyB revenue when it’s converted into dollars.

“It looks more expensive, but they will get more from it,” said Lorna Tilbian, an analyst at Numis Securities in London.

A News Corp official in London declined to comment on the impact of the pound’s gain on the deal. News Corp will register its proposed purchase with the European Commission “very shortly,” Mr Murdoch said last week.

Both parties have said they will focus on regulatory approvals for the deal that would be Murdoch’s biggest acquisition. – (Bloomberg)