Comcast’s offer of £17.28 a share, or about $22.59 a share, surpassed Fox’s highest bid of £15.67 after three rounds of bidding Saturday, in a rare auction held by British regulators. The £29.7 billion valuation was by far the highest ever for such a process in the U.K., which has conducted a handful of smaller-scale auctions to settle intractable bidding wars. The winning bid represents a premium of more than double Sky’s value before Rupert Murdoch’s Fox put Sky in play some 21 months ago.
Because of the auction’s setup, a sealed-bid auction in which neither side knew what the other was bidding, Comcast paid £1.61 a share, or about 10%, more than needed to beat Fox.
Comcast won at a steep price. Its winning bid was up sharply from its £12.50 bid in February and Fox’s initial £10.75 bid in December 2016.
The bidding on Saturday went down to the last of three rounds in the unusual, government-mandated auction. In the first round, Fox had the opportunity to raise its existing bid. Then, Comcast had the opportunity to top that, triggering a third and final round. That round was a “blind” round, in which neither side would be aware of what the other was bidding.
In the end, Comcast’s premium over Fox’s bid translates to about $3.6 billion for all of Sky shares. Still, auction veterans say it is unfair to judge a bidder after the fact in a sealed-bid auction.
David Paul Morris/Bloomberg News
Comcast Chief Executive Brian Roberts tightly oversaw the bidding, alongside a select group of executives, including his chief financial officer, top deal executive and outside advisers in a London war room, according to people familiar with the matter. Comcast felt it needed to win by a substantial margin to avoid difficulty winning over any significant shareholders and ensure it can close the deal smoothly, one of the people said.
Comcast CFO Michael Cavanagh, over a period of months, strategized with his deal team about how best to beat the other side. An enormous amount of planning went into how Comcast maneuvered Saturday, the people said.
The U.K. Takeover Panel had the power to mandate—and run—the auction after both sides appeared ready to continue to outbid each other outside of a formal auction process. The agency polices deals involving U.K. companies.
The jostling over Sky—which sells phone, TV and internet services to 23 million European customers and produces its own news, entertainment and sports programming—was part of a broader scramble by media companies to fortify themselves against a rising threat from Silicon Valley giants such as
Comcast executives say a combination with Sky—which like itself is a giant in both content and distribution—will boost its user base to 53 million and add more heft to invest in technology, programming and valuable sports-media rights. The merger will also help Comcast diversify its revenue base beyond the U.S., where cable cord-cutting is taking a toll on the traditional TV business.
“We think [Sky is] more like Comcast NBCUniversal than any company we’ve seen,” Mr. Roberts said in February when announcing the deal.
Still, Sky was something of a consolation prize for the cable giant. This summer, it lost a bidding war to
Co. for Fox’s entertainment assets. Disney agreed to pay $71 billion for Fox’s famed Hollywood studio and international assets, including a 39% stake in Sky that Fox had long held. That bigger deal is expected to close in coming months.
If Fox had won this weekend’s auction for Sky, Disney would ultimately have taken 100% control of the pay TV company. Instead, attention will now turn to whether Disney will sell the 39% stake in Sky—its value has increased by the bidding competition—or remain a minority partner for Comcast.
Analysts have raised the idea that Comcast could trade its 30% stake in Hulu to Disney—giving Disney overwhelming control of the streaming-video service—in return for the rest of Sky. Comcast has said it values its position in Hulu and just named some NBCUniversal executives to Hulu’s board.
Mr. Roberts of Comcast has said he would be prepared to jointly own Sky with a rival. Mr. Murdoch and his family are major shareholders in Fox and Wall Street Journal parent News Corp.
Despite Comcast’s win, the takeover isn’t a certainty unless it can win support from more than 50% of Sky’s shareholders to support the offer. That seems likely given the wide gap between the bids. But it could still prove challenging if Fox decides against tendering to the offer and that raises concerns for other investors that Comcast won’t be able to complete the deal.
Fox kicked off the chase for Sky in December 2016, offering £10.75 a share. The deal faced regulatory and political delays, and Comcast this February made a surprise £12.50-a-share offer. Fox raised its bid to £14 a share in July, only for Comcast to counter with £14.75 a share later that day. The U.K. Takeover Panel held the weekend auction after neither side backed down.
Comcast executives have said acquiring Sky will further the company’s ability to counter Netflix, potentially with an international streaming service. Sky already operates a streaming service called NOW TV in several European countries and has been investing in premium original shows in response to Netflix’s spending.
The merger could also yield benefits in news and entertainment programming. Sky News and NBC News could share resources, and larger scale could help the company bargain for the best content deals.
That is especially true in sports, where deep-pocketed tech companies such as
Google are throwing their hats in the ring. NBC has rights to the Olympics, NFL games, Nascar and the Premier League, while Sky carries matches from marquee European soccer leagues.
Chris Radburn/Zuma Press
Investors haven’t been as positive about the Sky pursuit. “Investors in both Comcast and Disney are hoping against hope that their company loses,” said veteran cable analyst Craig Moffett, of MoffettNathanson research, before the weekend auction, noting that the valuation for Sky had already gone “above any reasonable estimate of fair value.”
Comcast investors worry that the company is buying a satellite broadcaster at a time when U.S. satellite companies like DirecTV and
have hemorrhaged customers under competitive pressure. Investors have also worried that Comcast’s pursuit of Sky and its failed bid for the Fox entertainment assets showed that management wasn’t confident in Comcast’s core business.
Comcast shares slid considerably after it announced its initial Sky bid in February, but rallied more recently and are 4.5% below their February price. The company is using debt to finance its all-cash offer.
Mr. Roberts has sought to allay Wall Street’s concerns, noting that Sky isn’t simply a satellite TV business—it also has a broadband offering, a content studio and has invested significantly in video technology. In June, Sky posted strong results, including customer additions up 39% in the quarter. He has also said that Comcast is confident in the strength of its core U.S. cable business.
“Right now, I feel we’re in a strategically great place and any deals we’re doing we’re trying to play offense in a belief that we over the long term can create exceptional shareholder value,” Mr. Roberts said at a recent Goldman Sachs investor conference.
—Ben Dummett contributed to this article.
Source : WSJ