25 April 2019
Buying Sky will make Comcast the world’s largest pay-TV operator with around 52 million customers. Photo: Reuters
Buying Sky will make Comcast the world’s largest pay-TV operator with around 52 million customers. Photo: Reuters

Comcast outbids Fox with US$40 billion winning offer for Sky

Comcast beat Rupert Murdoch’s Twenty-First Century Fox in the battle for Sky after offering 30.6 billion pounds (US$40 billion) in a dramatic auction to decide the fate of the pay-television group, Reuters reports.

The US cable giant on Saturday bid 17.28 pounds a share for control of London-listed Sky, bettering a 15.67 pounds-a-share offer by Fox, Britain’s Takeover Panel said.

Buying Sky will make Philadelphia-based Comcast, which owns the NBC network and Universal Pictures, the world’s largest pay-TV operator with around 52 million customers.

Chairman and chief executive Brian Roberts has had his eye on Sky as a way to help counter declines in subscribers for traditional cable TV in its core US market as viewers switch to video-on-demand services like Netflix and Amazon.

“This is a great day for Comcast,” he said. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally.”

Comcast’s knockout offer thwarted Murdoch’s long-held ambition to win control of Sky, and is also a setback for US entertainment giant Walt Disney which would have likely been its ultimate owner.

Disney has agreed a separate US$71 billion deal to buy most of Fox’s film and TV assets, including its existing 39 percent stake in Sky, and would have taken full ownership after a successful Fox takeover.

Comcast’s final offer was a jump on its bid going into the auction of 14.75 pounds, and compares with Sky’s closing price of 15.85 pounds on Friday.

Comcast believed it needed to deliver a knockout blow given that Fox’s existing stake in Sky gave it a chance of victory if it was a close second to Comcast, two sources said. 

Its final offer – more than double Sky’s share price before Fox made its approach in December 2016 – quickly won the backing of Sky’s independent directors on Saturday.

“We are recommending it as it represents materially superior value,” said Martin Gilbert, chairman of Sky’s independent committee. “We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast offer.”

‘Shocking’ price

“The price being paid for Sky is shocking, but it is a clear sign that legacy media companies are desperate for scale in a world dominated by tech platform giants,” said Richard Greenfield, technology and media analyst at research firm BTIG.

Explaining the basis of big media’s rush to merge, Greenfield likened it to the opening scene in the documentary March of the Penguins.

“The penguins huddle to survive winter. With Disney/Fox and Comcast/Sky, it’s penguins huddling. Winter is still coming,” he said, referring to the advance of tech players such as Amazon.

Sky would reduce Comcast’s reliance on its mature US market by opening the door to Europe, where pay-TV penetration is at about 30 percent and rising.

The deal would also transform Comcast into the world’s largest pay-TV operator with 52 million customers and lift the proportion of its non-US revenue to about 20 percent from about 9 percent, based on 2017 full-year figures.

Comcast is paying a high price – more than double Sky’s share price before Fox made its approach in December 2016. But analysts said that a favorable result in the English Premier League soccer rights auction – Sky’s biggest expense – during the takeover saga had made the business more valuable.

Sky also gives Comcast an immediate beachhead in online video streaming with its Now TV business, which has about 2 million customers.

Analysts see Comcast super-charging Now TV to combat Netflix across the globe. And Sky’s exclusive relationships to distribute HBO entertainment content and Premier League soccer further insulate Comcast over the next few years.

Clouds and silver linings

Critics of the deal, however, argue that such relationships are sure to come under threat in the longer term, as content producers launch their own services and competition for sports broadcasting rights intensifies as deep-pocketed tech companies join the fray.

On the upside, however, Sky’s product range – including broadband connections that complement its satellite offer in state-of-the-art platforms such as Sky Q – and its brand make it more than a content aggregator, said Alice Enders, head of research at Enders Analysis,

“Sky has an extraordinarily well established brand; it is a destination, and that is very valuable in the world of fragmented media,” she said.

Fox noted the recommendation, saying it was considering options for its 39 percent stake and would make another announcement in due course.

“Sky is a remarkable story and we are proud to have played such a significant role in building the incredible value reflected today in Comcast’s offer,” Fox said.

Fox’s holding, which Comcast’s offer values at more than US$15 billion, stems from Murdoch’s role in the creation of the company nearly three decades ago.

His younger son James was pivotal in building Sky into Europe’s leading pay-TV operator as its former chief executive and current chairman.

Comcast, which requires 50 percent plus one share of Sky’s equity to win control, said it was also seeking to buy Sky shares in the market.

Huge price

One fund manager who holds Sky shares said nobody could complain about the Comcast price.

“The question now is if Fox actually sells out and if not can Comcast get to 50 percent,” he said.

One banker involved in the auction said: “Did Comcast pay a lot more than they needed to?”

Sources familiar with the matter said Fox, Disney and Comcast had not been in discussions about the 39 percent stake.

The auction was a dramatic climax to a transatlantic bidding battle waged since February, when Comcast gate-crashed Fox’s takeover of Sky.

It is a blow to 87-year-old Murdoch, who tried to buy Sky eight years ago only for the bid to collapse in the fallout from a phone-hacking scandal at his British newspaper business.

Some politicians have opposed a deal, citing concerns about the influence Murdoch would wield over the UK’s news agenda.

Fox made a string of concessions to assuage those worries and land a company that serves 23 million households in Britain, Ireland, Germany, Austria and Italy.

Sky’s chief executive Jeremy Darroch said Comcast’s victory was the beginning of a new chapter. “Sky has never stood still, and with Comcast our momentum will only increase,” he said.

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