Ivan Fallon: Rupert Murdoch and his unfinished business with Sky

Sky is a bit of unfinished business for the 85-year-old mogul who gambled everything to launch it in 1989 and came within an inch of bankruptcy as its losses mounted.

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There is no one like Rupert Murdoch to stoke up a controversy, sanctimonious comment in the rival press and questions in parliament. Last week we were treated to the full panoply after he announced that his 21st Century Fox is once again bidding for full ownership of Sky, in which it already owns a 39 per cent stake.

If it goes through, Mr Murdoch’s offer of £10.75 a share will cost him £11 billion (Dh51.32bn), compared to the £7.8bn he offered five years ago, a premium of about 40 per cent. But in Mr Murdoch’s case, it doesn’t really matter what he offers – there is always going to be a good old-fashioned fight. The former Labour leader Ed Miliband called on ministers to reject the deal, referring back to tired old issues of phone hacking. And Vince Cable, the business secretary who referred Mr Murdoch’s original bid to the competition authorities – and effectively killed it – opined that nothing had changed since he raised concerns about Mr Murdoch’s dominance of the UK media scene. There was much more in the same tedious vein.

This time round Mr Murdoch should win easily, although he is under pressure to raise his offer just a tad to satisfy the outside institutional shareholders who never, on principle, accept the first offer.

Thomas Moore, the investment director at Standard Life, led the charge, telling the BBC: “We would hope this is a starting bid and on reflection they will appreciate that a higher bid is more appropriate.” I doubt he will win that one – the independent Sky directors have already supported the bid and a higher offer now would deeply embarrass them. Mr Murdoch wouldn’t want that.

Sky is a bit of unfinished business for the 85-year-old mogul who gambled everything to launch it in 1989 and came within an inch of bankruptcy as its losses mounted.

It was an extraordinarily courageous, entrepreneurial thing to do at the time, taking on the whole media establishment, particularly the BBC and the main body of the press, using money he borrowed from the banks at penal interest rates.

I was the deputy editor of The Sunday Times at the time and witnessed it all at first-hand. It had to be put together in great haste. The government had awarded what was intended to be Britain's sole satellite operating licence to British Satellite Broadcasting (BSB), which was backed by deep-pocketed establishment companies including Pearson, Reed and Anglia TV. Mr Murdoch cleverly spotted a gap in the regulations governing the process – the British government had no control over signals beamed down from space, and there was nothing to stop him from legally launching his own operation. BSB protested vigorously, but Mrs Thatcher supported Rupert and she was right.

So when the Luxembourg-based Astra satellite project offered him five spare transponders, he accepted, knowing the new company had to be fully up and running before BSB could launch its much more sophisticated satellites. He ran it as a military operation – within the hour, my then editor, Andrew Neil, was summoned, told he was the new chairman, and dispatched from Wapping the same day to Osterley. People were pulled in from Australia, California and New York – anywhere Mr Murdoch could find useful bodies.

Wapping was stripped of its finance director, personnel manager and even its canteen staff.

Three frenetic months later, with everyone working around the clock, we all went out to Osterley where Rupert and Andrew and Norman Tebbitt, then the trade minister, counted down to the launch. Bang on time, the nascent Sky News appeared on the screen behind them.

Over the next two years, Sky cost Mr Murdoch £5bn. BSB, late into operation, spent £12bn, monstrous sums at the time which neither could afford. Then came the credit crunch of the early 1990s and interest rates soared. Mr Murdoch was caught short and the consortium of 157 banks to whom he owed money threatened to pull the plug.

Most of them had also lent money to BSB and their price for bailing Rupert out was that he merge Sky, whose subscriber numbers were building rapidly, with BSB, which was a dead duck.

He hated that deal, which cost him 50 per cent of the business – or more than £9bn at today's valuation – more than anything he ever did, with the possible exception of closing his beloved News of the World. He took all the risk, used all his ingenuity and skills, drove people mercilessly, while BSB squandered resources on fancy offices and technology that didn't work.

He swore that if it was the last thing he would do, one day he would get it back. He may be right on both counts.

Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis.


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