BSkyB rejected a cash proposal by part owner News Corp to buy the rest of the broadcaster that values it at $19 billion (€15.5 billion) but said it would recommend a higher offer from the Rupert Murdoch-controlled group.
Britain's dominant pay-TV broadcaster, whose growing subscription revenues, thanks to premium sports and bundling of TV and other services, appeal to cash-rich News Corp, said today the proposal undervalued the company.
But BSkyB said it would be prepared to recommend an offer of over 800 pence per share. At 700 pence, News Corp - which has $8.2 billion in cash and equivalents - would be paying $11.6 billion for the 61 per cent of BSkyB it does not already own.
The proposal, which is not a formal offer, represents a 17 per cent premium to yesterday's closing price.
Shares in the 21-year-old company leapt as much as 20 per cent, their biggest jump in a single day for a decade.
Mr Murdoch's son James, who runs News Corp's European and Asian operations and previously headed BSkyB and is still a non-executive chairman, has said pay TV in Western Europe is a top priority.
News Corp also owns 45 per cent of German pay-TV broadcaster Sky Deutschland, whose shares rose 9.2 per cent.
BSkyB shares have risen steadily in value since late 2008, when major cuts to advertising budgets battered commercial rivals, while BSkyB appeared to benefit from the recession by offering value-for-money entertainment to consumers.
But the recent slide of Britain's pound, combined with the ending of significant investments by BSkyB in broadband and high-definition technology, make this an opportune time for News Corp to make its move, analysts argue.
News Corp said outright ownership would make the value of its investment more transparent to its shareholders, but there were limits to what it would pay.
"Our proposal presents an opportunity to consolidate a core business with which we have been closely associated for over two decades. News Corporation will also benefit from increasing the geographic diversification of our earnings base," it said. "However, we are taking a disciplined approach to this transaction, recognising both the market valuation of BSkyB and our substantial existing ownership."
The company said its offer valued BSkyB at 11.8 times 2010 earnings before interest, tax, depreciation and amortisation (EBITDA) - significantly more than the average multiple of seven for European pay-TV firms and six for US counterparts.
It said it would finance the acquisition if it went ahead through a combination of cash and debt. Ratings agency Standard & Poor's said the proposed deal would not change its BBB+ rating and stable outlook for News Corp.
REUTERS