BSkyB under pressure as politics hijack merger

Reuters

LONDON (Reuters) - BSkyB shares will be under pressure again in the coming week after a weekend in which politicians ramped up their rhetoric to derail a proposed $14 billion takeover by U.S. media conglomerate News Corp .

British Prime Minister David Cameron is under growing pressure to halt the merger, at least until an investigation into a hacking scandal at News Corp tabloid the News of the World is complete.

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And opposition leader Ed Milliband said on Sunday he would force a parliamentary vote this week if Cameron did not act.

Growing political opposition to News Corp's bid for the 61 percent of the profitable pay-TV operator that it does not already own, now looks likely to delay government approval of the merger at least until the autumn.

"It's now firmly in the realm of politics," Alex DeGroote, media analyst at brokerage Panmure Gordon, said on Sunday. "The new worry now if News Corp is forced to sell its stake, which could be a massive overhang."

Nervous investors have dumped BSkyB shares at any hint of unexpected political interference in the merger process.

On Friday, the stock dropped suddenly by almost 6 percent when the communications regulator said it would take into consideration the News of the World's closure.

BSkyB shares fell by almost 1 pound per share last week to 750 pence, wiping about 1.7 billion pounds ($2.7 billion) off the value of the company as opposition to the deal mounted and News Corp took the drastic step of closing the newspaper.

"A lot of downside is already priced in but I see a floor in the high 600s -- so there's about 50 pence more to go," said DeGroote, who cut his price target to 730 pence on Friday, saying he gave the deal only a 50 percent chance of success.

News Corp Chief Executive Rupert Murdoch flew into Britain on Sunday to deal with the escalating crisis at the News of the World that has led to a clamour for the merger to be stopped to limit Murdoch's media influence.

His presence to take personal charge of the situation may reassure investors sufficiently to prop up shares in satellite broadcaster BSkyB on Monday morning, one analyst said.

Media analyst Patrick Yau of brokerage Peel Hunt saw short-term support for the stock after regulator Ofcom said at the end of last week it would not use its power to decide whether a media owner was "fit and proper" to intervene for now.

"The other positive factor is that Murdoch is in town to take charge of the situation," he said. "I think that the shares may tick up a little tomorrow."

"He could still play the Brooks card if things become more difficult," said Yau.

(Reporting by Georgina Prodhan and Kate Holton; Editing by Marguerita Choy)