Financial Times

Sky agrees to sweetened £24.5bn takeover offer from Fox

by Arash Massoudi, Matthew Garrahan and Adam Samson, FT

July 11, 2018 | 4:52 pm
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Rupert Murdoch’s 21st Century Fox has agreed new terms to acquire Sky, the pan-European TV group, in a deal worth £24.5bn that is designed to see off a rival offer from US media giant Comcast.

Fox said on Wednesday that it had agreed to pay £14 per share for Sky, a significant premium to the original £10.75 per share deal it made with the London-based company in December 2016.

The Financial Times reported on Tuesday that Fox was preparing to boost its offer for Sky to fend off Comcast, the cable and entertainment group, which swooped in this April with its own £12.50 a share bid for the company.

Sky’s independent committee said on Wednesday that the Fox bid “represents a substantial increase in value relative to the Comcast offer”, adding that it “intends to unanimously recommend” the offer to Sky shareholders.

Martin Gilbert, head of the independent committee, said: “We welcome this increased offer which is 30 per cent higher than 21CF’s initial bid and 12 per cent above Comcast’s. This offer reflects the strong position the business is in and is an attractive premium for shareholders.”

However, Mr Murdoch’s company has yet to receive UK government clearance on its planned takeover of Sky, which remains a key obstacle to a deal. The government’s decision is expected by Friday.

The new offer is pitched below the trading range for Sky shares in recent days, which closed on Tuesday at £15.01, giving it a market value of £25.6bn. Sky has net debt of £7.4bn, according to FactSet data.

The shares slipped back to £14.85 in early London trading on Wednesday.

Analysts questioned Fox’s latest offer. “It seems inconceivable a deal can go through at this £14 level,” said Alex DeGroote, an independent City analyst. “This is not a knockout blow at all [and] we are puzzled it’s recommended.”

A number of hedge funds including Seth Klarman’s Baupost Group, Paul Singer’s Elliott Management, Davidson Kempner and Odey Asset Management have piled into Sky shares in the expectation of a continuing bidding war.

Sky has become a pawn in a global media power play between Comcast and Disney, the US media group. Disney has agreed a $71bn takeover of Fox’s entertainment assets, including its 39 per cent stake in Sky, and will take full ownership of Sky if Fox succeeds with its bid. Fox also has net debt of nearly $14bn.

In addition to competition from Comcast, the increased Fox offer reflects improvements in Sky’s operating performance thanks to its recent success in securing rights to the English Premier League at a price lower than most analysts had expected.

Last month Disney revealed that it projected Sky’s earnings before interest, tax, depreciation and amortisation and free cash flow would be much higher from 2020 than when it first struck a deal for Fox. For that year, it estimated that ebitda would be £3.06bn or more than 27 per cent higher than its previous forecast.

Fox said on Wednesday that Disney provided its consent to the increased indebtedness it would incur as a result of the higher offer. Disney has also offered to reimburse Fox £1bn, or £1 per Sky share it does not already own, if its own deal to acquire Fox is blocked by regulators and thus disrupts the new arrangements made for Fox’s takeover of Sky.

Disney hopes to add programming and films from Fox to a global streaming service that it is developing, and Sky would give it a much heftier presence in Europe with 23m customers in the UK, Germany and Italy.

Fox said: “This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe.”

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by Arash Massoudi, Matthew Garrahan and Adam Samson, FT

July 11, 2018 | 4:52 pm
  |     |     |   Start Conversation

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