Comcast has outbid Fox in a rare
sealed auction to set itself up to win full control of Sky.
Comcast finally offered £17.28
per share, against Fox’s £15.67. This is
a dramatic milestone in what has become one of the most complex battles for corporate
control in my two decades of practice as a corporate lawyer.
The issue of who would take full
control of Sky has been long-fought, contested and controversial. It continues to be a conquest between media
giants that has played out in the media, as well as before the regulators.
Fox already has a 39% interest
in Sky. The Murdoch group has attempted
to gain control of the remaining 61% on two memorable occasions. The first back
in 2011 was jettisoned amid the phone hacking scandal. UK regulators and Sky shareholders did not
have an opportunity to decide definitely on the deal. The most recent attempt began with Fox’s £10.75
per share offer in December 2016. Although
the transaction was cleared on antitrust grounds following a review by the
European Commission, it met with UK public interest concerns that complete control
by Fox would threaten media plurality. The
deal only received conditional approval in July this year, with Fox committing to
Sky News’ editorial independence and maintain £100 million in investment over
15 years.
Meanwhile, Disney has agreed
to acquire the Fox entertainment assets – which include Fox’s stake in Sky. The transaction awaits full regulatory
approvals but is expected to close next year.
These developments reached a
high-water mark over the weekend in an unusual bidding procedure as neither Fox
nor Comcast had put in what they declared to be a final offer. The auction was overseen by the UK Takeover Panel
and was structured around three rounds of sealed bidding before the winner
emerged. Such procedures are not uncommon in private M&A. They are unusual in the case of a UK public company
and Sky is probably the most-high profile of the five targets to date. Other examples have included Enodis, steel-maker
Corus, Canary Wharf property group and online retailer, QXL. They are eclipsed by the £30 billion bid for Sky.
It might be asked whether Comcast
has bid too high, but Sky has been described as a “unique asset” and a “jewel
in the crown”. Critics might say that
blind bidding and sudden death procedures fuel over-valuation. The point has
been raised by Tata reflecting on its own experience on its acquisition of Corus
where it paid £6.7 billion in an auction.
Undeniably, there is a substantial
difference in the Comcast and Fox final bids but there are questions of strategy,
Boardroom egos and financial headroom to consider.
For Comcast there is much to
play for. It has lost out to Disney over
the Fox entertainment assets. It is the
biggest cable operator in the USA and includes NBC Universal in its corporate
stable. Yet Comcast faces declining North
American subscriber shares and competitive threats from streaming services such
as Netflix and Amazon. Sky is not just a
satellite TV service but has a diversified offering including the Now TV
streaming service, broadband internet and mobile. Sky presents clear complementarities and
opportunities for vertical integration across the media value chain from
content into distribution and cross-media. Sky offers an opportunity for geographic reach
and diversification, adding some 23 million customers in key European markets
such as the UK, Ireland, Germany, Austria and Italy without having to grow
these organically. Then factor in Sky’s premium
sports rights, and a brand, business model and product that has reportedly won
the respect of Comcast senior management, it is not difficult to see why this
deal matters to the US group.
Disney has seen the value of
its conditional interest in Sky increase dramatically as the corporate tussles
have ensued. The Disney-Fox side already
has a 39% stake which gives a level of influence and ability, at least in
principle, to hold the status quo. That
it is not to say that it does not want to own Sky outright, but other factors
come into play.
In short, Comcast really had
to come in with a knockout bid to give it the best prospects of emerging on
top. Deal insiders say that it had to
raise its offer substantially above that of Disney-Fox to be sufficiently
alluring to those shareholders who would be likely to go with the latter based
on their existing interest.
This is not quite the end of
the process. Sky’s shareholders have
until 11 October to decide which formal offer to accept. Comcast says that it expects
to conclude by the end of October. Since
that bid has been recommended by the Sky Board, it seems on track to do
so. Disney will be considering its
position on its interest in Sky.
What will this mean for Sky
customers? They are probably unlikely to see any immediate change. Only time will tell. Comcast has had to dig deep to fund its offer. It will understandably be looking at creating
synergies and cutting costs Where those savings
will come from and the extent to which they will be passed on to customers is
not entirely clear. Whoever ultimately
controls Sky will not want to kill off the golden goose by alienating its growing
pool of customers through higher prices and less choice. It will need to continue to invest in quality
services and features, including premium sports content, which is arguably one
of its most prized assets.
