October 12, 2017 / 9:31 AM / a year ago

Breakingviews - Sky investors choose between profit and principles

LONDON (Reuters Breakingviews) - Sky shareholders face a choice between principles and profit. Some investors are planning to oppose Chairman James Murdoch’s re-election because he is also chief executive of 39 percent owner Twenty-First Century Fox. But kicking up a stink might further jeopardise Fox’s offer for the European pay-TV group.

James Murdoch

Sky investor Royal London Asset Management had a point last week when it called Murdoch’s dual role “inappropriate” and said shareholders would be better served by a truly independent chairman during the takeover. Shareholder advisory groups, meanwhile, object to Sky’s executive pay. One problem is that some long-term incentive packages could pay out with no performance conditions if Fox’s offer gets the green light, according to Glass Lewis.

Murdoch survived an investor backlash last year, winning election with around 70 percent support. Strip out Fox’s stake and abstentions, however, and just half of Sky’s independent shareholders backed the chairman.

Concerns about conflicts of interest are more pressing this time. Fox’s bid is on ice until at least March 2018 while UK authorities study its effects on the country’s media ownership and broadcasting standards. Sky investor Crispin Odey has argued that the delays are beginning to make the offer look on the low side.

That logic is questionable. When it was launched in December 2016, Fox’s offer of 10.75 pounds per share represented a 40 premium to Sky’s market value. The shares would probably fall to around 8 pounds if the bid is blocked. Notwithstanding their concerns about Murdoch’s independence, most Sky shareholders would bite Fox’s hands off if they got a chance to vote on the bid.

That is why investors might hesitate before lodging a protest vote as long as Fox and the Murdoch family are under a regulatory microscope. Campaigners have argued that past sexual harassment and phone-hacking scandals in the Murdoch empire are grounds for blocking the takeover. Drawing attention to the family’s governance shortcomings could add to the political pressure on UK Media Secretary Karen Bradley, who must rule on the deal. Sky shareholders have legitimate complaints. But those thinking with their wallets may decide to keep quiet.


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