BSkyB is dipping into its war chest to buy Amstrad, Sir Alan Sugar's set-top box manufacturing firm, for£125m.
BSkyB is dipping into its war chest to buy Amstrad, Sir Alan Sugar's set-top box manufacturing firm, for £125m.

Sugar and his senior management will join BSkyB and the deal will give the satellite giant greater control over its supply chain. Amstrad currently supplies 30% of Sky's set-top boxes, and Sky expects to enjoy an immediate margin lift as a result of the deal.

ABN Amro analyst Justin Diddams hailed the deal as 'earnings-enhancing and value-creating' and added: 'It offers Sky vertical integration with positive financials. For Sky, in a market where competitive advantage is key, this is a positive move.'

Investec Securities analyst Steve Liechti said: 'Overall, the move appears 'left field' but strategically it is sensible given that technology is one of Sky's key USPs. However, one has to question whether it would have been better for Sky to shop around more.'

The 150p per share offer for Amstrad was a 23% premium on its closing share price.

The Amstrad deal follows Sky's annual results, which showed that strong operational figures and new product development are driving business momentum at BSkyB.

Sky's pay-TV business increased operating profits to £958m in 2007, yielding a margin of 22%, and the City believes it is firmly on track to deliver its target of 10 million subscribers by 2010.

At present the group has 8.6 million subscribers across the UK, but Liechti believes that Sky's new broadband, Sky+ and high definition services now make the group's combined subscriptions business 'more sticky'.

Amstrad's technical and development capabilities in the set- top box market will also increase Sky's speed to market with new products.

UK research and analysis firm Enders Analysis said: 'Even one year ago 10 million seemed a distant prospect; however, the recent sets of quarterly figures suggest that the target is realistic.'

Enders added that 'the positive halo effect' of Sky's broadband and telephony offer would probably tip the scales to allow the company to achieve its subscription targets.

It said that the cheapest Sky basic package (£15 a month) 'looks expensive compared to Freeview'. But the price comparison 'does a flip' when Sky's 8Mb broadband is factored in and 'Sky basic plus 8Mb broadband hardly looks different from Freeview plus someone else's 8Mb broadband'.

The consensus among analysts is Sky is in a much stronger position than its competitors and that its 'See, Speak, Surf' marketing and promotional strategy launched in January this year will push the group even further ahead in the short term.