UBS Analysts Speculate on BSkyB Merger with Vodafone or O2 UK

Global financial services firm UBS has triggered an uplift in BSkyB’s (Sky Broadband) stock price after suggesting that the company could merge its European pay-TV assets to form Sky Europe and or then pick-up a mobile operator by merging O2 (Telefonica UK) or Vodafone UK into their operations.

Political nickers have a tendency to get in a twist whenever BSkyB and the word “merger” are muttered in the same sentence, although a report on Sharecast (spotted by Thinkbroadband) sees UBS suggesting that Fox’s EU pay-tv assets might be able to get around this by keeping BSkyB listed and having its “operating assets injected into Sky Europe in return for a majority stake in the larger entity“.

The highly speculative report suggests that concerns over the impact of the BTSport TV content, which is being offered for free to BT’s existing broadband subscribers, might be overplayed because UBS anticipates BSkyB and BT reaching some form wholesale agreement to share access during 2014. Likewise the potentially huge impact of Sky’s new services, such as NOW TV, might also have been ignored.

UBS Statement

“We think trading at Sky (BSkyB) will remain resilient despite competition from the new BT Sport channel. We do not think the economics for BT Sport stack up and expect Sky to agree a wholesale deal with BT on sports at some point in 2014.

We think investors have overlooked significant growth from new initiatives such as Adsmart, NowTV, Sky Go Extra and Entertainment Extra+ that could add £212m to profits by 2018.”

But perhaps the most interesting suggestion is that Sky Europe could then add a mobile phone and Mobile Broadband solution to become a quad-play operator via scooping up Vodafone or O2 UK. Sky’s arch rivals, Virgin Media and TalkTalk, have already branched out into the quad-play market with some success and thus such a move would not come as a shock.

On the other hand many mobile operators, such as O2 (sold its home broadband customers to Sky in 2013) and EE, have struggled to make the triple or even quad-play mix of mobile, phone, home broadband and or TV work. It’s not an easy battlefield to fight but Sky might have the clout to make such a move if it so wished.

Given the choice we’d be more likely to expect Sky Europe to target O2 because Vodafone is big and already has bold ambitions to become an even bigger pan-European operator. By comparison O2 is also big but struggling to deal with debt. Sky also knows how O2 works from their previous dealings and at the same time CCS Insight has hinted that Three UK might also have an interest in gobbling O2 (here), which could give Telefonica an extra reason to open itself up for merger talks.