If you’re in the M&A business, the phrase 'a good strategic fit' – as parroted on press releases, in media statements and in front of analysts and investors – has a certain familiarity about it.
But in the case of News Corp’s surprise £220m swoop for TalkSport owner The Wireless Group, it’s not just a good strategic fit, it’s so damned perfect that one wonders why nobody had thought of it before.
To recap: last week, while everyone was distracted by the self-immolation of our two main political parties and the post EU-referendum turmoil, media’s wiliest mogul announced a buyout of the owner of one of the UK’s most popular radio stations.
So, what’s Rupert Murdoch bought, and more importantly, why?
To answer the first part of the question, Wireless Group plc (formerly UTV Media plc) is a media company with three operations: Radio GB, Radio Ireland and Digital Services.
Radio GB operates TalkSport, the world’s most listened to sports radio station (as well as a couple of smaller stations offering sports coverage) and Virgin Radio; Sport, the free sports magazine given away every Friday in big cities; about 10 independent local radio stations in England and Wales and digital radio multiplexes throughout Great Britain – including TalkRadio, the national speech station.
Radio Ireland is a local radio operator in Ireland with some seven stations broadcasting from Belfast, Cork, Limerick, Dublin and Drogheda, and an advertising sales house based in Dublin.
Digital Services offers Tibus and Simply Zesty, which provide digital support to the radio divisions alongside services to external customers. Tibus provides internet services for businesses and public organisations. Simply Zesty is a digital advertising agency offering customers a range of creative digital marketing and technology services.
There’s probably one reason why Murdoch bought this set of assets, strong as they are: football. TalkSport is extremely strong in football, and interestingly, it is a key rights holder for Premier League coverage. Thus it is a perfect fit with his Sky TV operation and also his existing print properties, particularly the Sun, which is using its football coverage to establish a presence in digital (in conjunction with Sky, the Sun offers footy clips and goals on desktop and mobile devices).
Murdoch’s acquisitions in the last decade have not always been successful: everyone remembers the farcical $580m takeover of social media pioneer MySpace in 2005 (the company was sold six years later for just $35m); and there is still a feeling in some quarters that the $5bn he shelled out for Dow Jones and the Wall Street Journal left him dangerously over-leveraged.
But this Wireless Group deal is a very, very good one. First of all, it gives News Corp's British operation News UK a foothold in radio, the only important media channel it doesn’t have a presence in. It also allows News UK to compete further with its old nemesis, the BBC – Radio , Five Live and the local stations especially.
Secondly, the mogul timed his swoop to perfection – the steep fall in the pound in the wake of the Brexit referendum would have made the buyout more affordable in US dollars (News UK’s parent News Corp is based in New York, remember).
Then there’s the matter of a pre-existing relationship – News UK knows exactly what it’s buying. TalkSport has a storied history, and it is inextricably linked with Murdoch. It was started up back in 1995 as Talk Radio. In 1997 it made its first foray into sports broadcasting with the acquisition of rights to broadcast the Football League, taking them over from BBC Radio Five Live; the following year it bolstered its football links by broadcasting the 1998 World Cup, bringing in seasoned commentators from Sky.
That year it was bought by one of Murdoch’s old lieutenants, former Sun editor Kelvin Mackenzie, who’d formed a company called TalkCo Holdings. In 1999 it rebranded as TalkSport and moved away from broadly speech-based broadcasting to a focus on sport, and particularly on soccer (although cricket, rugby, tennis and boxing have also featured heavily on its schedules). It thus became the UK’s first commercial national sports broadcaster.
Between 1999 and 2005 (when TalkSport, as it was then branded, was bought by UTV) Murdoch was a stakeholder in the company. He has now got it back, but this time he is the sole shareholder.
But most significantly, what the deal gives News UK is the opportunity to offset declining revenues from its print operations (which include the Sun, Times and Sunday Times, as well as book publisher Harper-Collins), and a chance to cement its links with what is probably the world’s most valuable sporting brand, the English Premier League.
Sky’s dominance of the Premier League has been eroded in recent years by cash-rich BT, which has made no secret of its desire to become a powerhouse in broadcasting. And there’s no doubt that if the Premier League continues to draw in audiences from around the world, other acquisitive global players – Liberty Media or Channel 5 owner Viacom – will start to sniff around when the broadcast rights next come up for grabs. Despite Sky's huge size – it is the UK’s biggest broadcaster, dwarfing even the BBC – it is vulnerable because it is overly-reliant on sports broadcasting for its revenues, lagging behind UK terrestrial broadcasters and under pressure on its entertainment output from services such as Netflix and Amazon Prime. Any large loss of sports broadcast rights could be catastrophic.
However, TalkSport could provide valuable protection against any future erosion of News Corp's grip on sport. Last month it won three out of eight packages of live Premier League audio rights, and is now also the global audio partner of the Premier League, having exclusive rights to broadcast commentary of every game outside the UK and Republic of Ireland. It beams these round the world on various platforms in a variety of languages including English, Spanish and Mandarin.
And in an era of cross-platform broadcasting, and increasing incursion into its territory by Silicon Valley giants like Google and Facebook, the acquisition helps futureproof both News UK and its global parent.
If there’s one thing that media operations need to do – particularly if a large proportion of their revenues come from print, as News UK’s do – it’s to extend their reach across a variety of platforms, and this acquisition does just that.
Finally, let’s not forget Sport magazine, which is targeted at the affluent male and hand-distributed in locations across the country including London mainline and tube stations. It is also available at many hotels, gyms and airports and has a circulation of 300,000 per week, meaning that it is the UK’s biggest men’s magazine after Shortlist. Also available in a digital version for tablets, it is a valuable upmarket medium for advertisers, giving News UK a chance to tap into audiences and brands not served by its newspapers.
Incidentally, Wireless Group investors must be very pleased as well: Murdoch’s all-cash buyout represented a 70 per cent premium on Wireless Group shares when they closed on 29 June. And prior to the acquisition, former owner UTV had announced that it might have to make job cuts. It seems likely that News UK will invest in its new baby, bolstering both its content and sales operations, so staff should be happy.
So, smiles all round then. And in the long term, no matter what else he buys in the future, this latest acquisition (which, for News Corp, represents small change) could be one of the most astute the world’s best-known media mogul has ever made.
Tony Walford is a partner at Green Square, corporate finance advisors to the media and marketing sector