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Sun 23 Sep 2018 12:48 PM

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Comcast outbids Fox with $39bn move for UK satellite broadcaster Sky

Another shadow over the deal: whether Fox will agree to sell its 39 percent stake in Sky to Comcast

Comcast outbids Fox with $39bn move for UK satellite broadcaster Sky
Comcast’s emergence as the winner helps put an end to months of uncertainty over the future ownership of the TV company Rupert Murdoch founded in 1989.

Comcast overwhelmed 21st Century Fox in a bidding war for Sky, offering $39 billion in a move that puts it on track to acquire Europe’s largest satellite broadcaster.

In an rare auction overseen by UK regulators, Comcast bid 10 percent more than Fox on Saturday, all but ensuring that it will win control of London-based Sky.

Should Comcast complete the transaction, CEO Brian Roberts will have a chance to build a global television giant, helping stave off the threat from Netflix Inc.

The outcome marks a victory for the 59-year-old cable magnate after a string of M&A setbacks. Roberts, who spent Saturday in a London hotel orchestrating the auction, had previously tried to acquire the bulk of Fox - only to be outbid by Walt Disney Co.

“This is a great day for Comcast,” he said in a statement. “Sky is a wonderful company with a great platform, tremendous brand and accomplished management team.”

Comcast’s emergence as the winner helps put an end to months of uncertainty over the future ownership of the TV company Rupert Murdoch founded in 1989.

Independent directors at Sky have recommended accepting Comcast’s offer, and investors have until Oct. 11 to tender their shares.

The question now is whether Comcast paid too much. Investors have already expressed concerns about its M&A ambitions this year, sending its shares down more than 5 percent. Comcast’s final bid of 17.28 pounds a share was well above the 15.67 pounds offered by Fox.

Another shadow over the deal: whether Fox will agree to sell its 39 percent stake in Sky to Comcast.

People familiar with the matter said that Fox was mulling tendering the stake if Disney supports the move. The company said in a statement on Saturday that it was still “considering its options and will make a further announcement in due course.”

Bloomberg Intelligence analyst Paul Sweeney said he expects that Fox will capitulate. “I can’t imagine they want to be a minority shareholder in this,” Sweeney said. “It’s a very bold price.”

The sweetened bid from Comcast - 17 percent higher than the company’s offer for Sky going into the auction - exceeded expectations. It was well above the 16.53 pound average estimate of a Bloomberg survey.

“I’m pretty excited - we’ve got a good price for it,” said Sky investor Crispin Odey, founder of Odey Asset Management. The fund manager owns 0.6 percent of the shares, according to data compiled by Bloomberg. “I still think it may look a bit cheap in a couple of years.”

Content and distribution

Buying Sky allows Roberts to expand the content and distribution model he has embraced since taking control of NBCUniversal seven years ago.

With Sky, the Philadelphia-based company would deliver TV services to 52 million customers in the US as well as European countries such as UK, Italy and Germany, and add sought-after programming such as the rights to Premier League English soccer.

Sky also has original TV productions, such as the 1920s sex-and-crime saga “Babylon Berlin” and “Britannia,” a period drama about the Roman conquest of Britain.

Netflix, meanwhile, has relied on other companies’ broadband networks to distribute its lavish in-house productions and expand its global subscriber base to 130 million.

Crucially for Comcast, Sky has a growing video-streaming business. Roberts has said he was “terribly impressed” with Sky’s market-leading Q box platform, which is also a rich source of data on customer viewing behaviour.

Comcast estimates that owning Sky will create $500 million in synergies, partly through selling Sky content in the US and NBC programming in Europe.

Fourth time lucky?

Adding Sky would mean Comcast generates a fourth of its sales outside of the US, up from 9 percent now. It would also represent a victory in Comcast’s checkered history of dealmaking. While Comcast acquired NBCUniversal and DreamWorks Animation over the past decade, it failed in attempts to buy Disney in 2004, Time Warner Cable Inc. in 2015 and Fox in July.

If Fox had outbid Comcast, Sky would have fallen into Disney’s hands next year as part of its $71 billion Fox takeover deal struck in July.

That deal will bring Disney franchises such as the “X-Men” and hit shows like “The Simpsons.” The loss of Sky partly stymies Disney CEO Bob Iger’s goal of establishing more direct ties to consumers and expanding his international business.

Murdoch, the 87-year-old billionaire behind Fox, had been working for years to acquire the portion of Sky that his company didn’t already own. An earlier attempt was thwarted in 2011 by a phone-tapping scandal at his U.K. newspaper business.

Fox struck a philosophical tone in the wake of the auction Saturday, depicting its loss to Comcast as a victory of sorts.

“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,” the company said.

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