FRANKFURT Rupert Murdoch's News Corp tightened its grip on Sky Deutschland on Monday, saying it would raise its stake in the German pay-TV company to 54.5 percent from just under half in a capital increase.
The move comes as media conglomerate News Corp separates its publishing and entertainment assets into two publicly traded companies following shareholder pressure to sell its troubled newspaper business and put a greater focus on the faster-growing TV companies.
It also follows an attempt in 2010 by News Corp to snap up the 61 percent of Britain's BSkyB that it did not already own. That deal was eventually scuppered by a phone hacking scandal at one of Murdoch's tabloid newspapers, but it indicated the group's intentions around pay-TV.
News Corp is hoping Sky Deutschland will turn out like BSkyB, which has amassed over 10 million customers and grown adept at selling increasing numbers of services to them.
BSkyB posted a record full-year adjusted operating profit, up 14 percent to 1.2 billion pounds in July, while Sky Deutschland has made a profit in only one year since it was founded in the early 1990s.
News Corp so far has invested about 1 billion euros in the business.
NO FULL TAKEOVER
Under the plans revealed on Monday, News Corp will be able to consolidate Sky's earnings in its own figures.
A person familiar with News Corp's thinking said it could increase its holding further although it did not plan a full takeover for the group, which it believes has "significant market opportunities".
Under German law, News Corp is not required to make an offer for all outstanding shares.
"We suspect this is to drive aggressive growth plans," UBS analysts said.
Sky Deutschland said on Monday it was raising a gross 438 million euros ($584.5 million) via a private placement with News Corp and a rights issue, more than three times as much as had been expected.
Shares in Sky Deutschland were up 2.8 percent at 4.73 euros by 1200 GMT after hitting their highest level in more than four years.
News Corp will buy 77.9 million new shares at 4.46 euros apiece, a 3 percent discount to Friday's closing price, accounting for 347.4 million euros of proceeds.
The rights issue, in which News Corp will also participate, will launch soon after the private placement has ended, with a subscription price that would be no higher than 4.46 euros.
Sky Deutschland said it still expects to be profitable on an operating level in 2013 after News Corp agreed to grant guarantees for half of the license fee that it is paying for rights to broadcast top-flight German soccer league matches.
The person familiar with News Corp's thinking said Sky Deutschland's financing structure had been the only unresolved issue at the German company, adding the transaction announced on Monday cleared the way for growth.
The guarantee for Bundesliga soccer rights and the capital increase announced on Monday come on top of a 300 million euro credit facility backed by News Corp, 106 million in shareholder loans and a 165 million euro convertible bond.
News Corp began building a stake in Sky Deutschland, formerly known as Premiere, in 2008 and has participated in several rights issues of the struggling German pay-TV broadcaster.
Sky Deutschland's current chief executive Brian Sullivan took the helm in 2010 after spending around 14 years at BSkyB. ($1 = 0.7493 euros)
(Reporting by Christoph Steitz and Harro ten Wolde. Additional reporting by Kate Holton in London,; Editing by Maria Sheahan and Erica Billingham)