Murdoch lines up a bargain as he moves to take full control of BSkyB

A reminder, if any were needed, of Rupert Murdoch's eye for a canny deal. Last month, Murdoch made a bid to take full control of BSkyB, where he is the largest shareholder, offering 700p a share. The board said the price undervalued the company and, unusually, named a price more to their liking of 800p. But assuming the deal hasn't already been done, the directors might regret setting a target price so publicly. A note from analysts at Nomura published last week puts a valuation on BSkyB of £10 a share, suggesting that even if Murdoch huffs and puffs his way to 800p, he will have a bargain. Nomura's argument is simple; the satellite broadcaster is at the end of a heavy investment cycle, from the upgrades to digital, to broadband and most recently high definition. With that expenditure behind it the business will substantially improve its margins, something Murdoch knows only too well. That is not a new observation, but one that Nomura believes the City has not worked into its models. Nomura also reckons the consensus has failed to take account of recent events including the distribution of Sky sports channels to BT; an agreement to supply HD channels to Virgin Media; the acquisition of Virgin channels; and a 5% price increase – worth an additional £85m in earnings alone. For a long time, BSkyB consumed cash, and Murdoch reluctantly took the business to the stock market to help fund its early years. But the business is now throwing off money at a time when much of Murdoch's empire is facing big challenges, most notably his cherished newspapers. The steady subscription revenues of BSkyB have proven almost recession-proof. The board and Murdoch have agreed to seek regulatory clearance before returning to the table. Nomura's thinking echoes comments from Crispin Odey, founder of Odey Asset Management and a shareholder in BSkyB, who has urged the board to turn its back on the offer, noting that he too would like to share in the prosperity of the next five years. Odey knows Murdoch well enough to be certain he is making the bid with a view to significant upside. He was, after all, once married to Murdoch's daughter Prudence.