The scale of the defeat suffered by BSkyB in having its bid for
Manchester United referred to the Monopolies and Mergers Commission is
being played down by company executives, not least because in the
world of corporate finance anger is interpreted as weakness, and
weakness can unleash the various hyenas and hounds that populate the
merchant banks and investment houses.
It was clear days before trade and industry minister Peter
Mandelson actually announced his decision to refer the bid, on the
somewhat spurious grounds of competition, that BSkyB had been given
indications about the direction in which the wind was blowing.
There was some discrete lobbying, but nothing too heavy. BSkyB was
intensely aware that the public mood was running against it and senior
executives felt that no referral might be as bad as a referral. It
was, said one, "a lose-lose situation".
The company spin doctors under Texan managing director Mark Booth -
the man who famously failed to name the position played by Dennis
Irwin - were furiously scheduling meetings with key financial
journalists to hammer home the message that in the longterm a referral
would be the preferred option.
"We listened too much to the lawyers and didn't take enough
notice of the politics," said one BSkyB apparatchik. "We'd
be quite happy to argue our case."
The real feeling of annoyance, however, was voiced by Rupert
Murdoch whose News Corp is the largest shareholder in the television
company. Addressing his company's AGM he talked about a betrayal of
the interests of small shareholders from all sides - still, a bit rich
from a man who has spent much of his time trying to squeeze out his
own small shareholders.
Murdoch's argument, shared by virtually every takeover lawyer, is
the referral was a political rather than a business decision. The
argument that ownership of United would give BSkyB an advantage in
negotiating for Premiership television rights is as accurate, but
irrelevant as saying that ownership of Coronation Street gives Granada
an unfair advantage in any bids for the regional franchise.
Certainly, when the BSkyB bid was first announced, only the
Independent Supporters Association appeared to think there was any
chance of a referral. They mounted an impressive public relations
campaign which led to no less than 46 MPs, including several junior
members of the Government, lobbying for a referral.
Yet referral itself is still not regarded by BSkyB as a problem -
the delay it causes might be. The MMC could take as long as six months
to make its report and privately the politicians, particularly those
from the North West, are pushing for a "comprehensive
examination" - the longer the better.
If the City believed that this bid was fully valued, Murdoch would
have little to worry about, but it does not. A well-sourced report in
the magazine Business Age suggested that BSkyB negotiators had
been authorised to go up to �l billion - a ludicrous figure based on
business fundamentals, but as one investment banker pointed out:
"This deal is not about the tangibles - it is about riding the
brand."
Certainly nagging at the hems of this deal is the feeling that the
club is being undervalued, that BSkyB's bid of �623 million is too
low to sustain.
Also, Martin Edwards' trackrecord in levering value out of the
shares is hardly impressive, this, remember, a man who was going to
sell to Michael Knighton for just over �10 million.
The board is also far from unanimous that the deal being offered is
the best that could be gained under any circumstances and even major
institutional shareholders such as Phillips and Drew have been making
noises of displeasure.
The investment banks have, naturally, been kicking around the
figures, both Merrill Lynch and an unknown Wall Street brokerage have
been busily canvassing clients for possible interest in a counter-bid,
though United's brand is linked inextricably to the product so any
form of leveraged buyout or break-up attempt is a non-starter.
Then there is Bernie Ecclestone who is being courted furiously by
corporate financiers trying to find a home for the �2 billion that
could flow into his coffers from the highly-complex Formula One bond
he has developed.
However, the most obvious candidate to mount a counterbid is
Granada, but it does not have BSkyB's need for a strategic brand in
Asia and, therefore, would need to judge price on a business basis.
This is where its appetite for a prolonged struggle with BSkyB
could be found wanting.
It is now no secret that BSkyB is prepared to fight any counterbid
and the figure of �800 million is gradually floating around the City.
To trigger this, however, another bidder would need to enter the
fray, pitching perhaps at �680 million.
Everyone is looking to Granada to make the next step, but so far
the sounds coming from the company are mixed. No analyst is prepared
to guess which way the company will move.
No one with a legal background believes that the MMC will rule
against the bid and still fewer people expect the smaller shareholders
to be able to get the votes needed to block it.
There could, however, be a major surprise. It is worth noting that
just prior to referral the shares were trading well below the bid
price. This suggests that the City is coming to the view that
political and public pressure may in the end outgun the News Corp
artillery.
