21st Century Fox Wants All of Sky -- WSJ

By Shalini Ramachandran, Austen Hufford and David Benoit 

The Murdoch family's 21st Century Fox Inc. is making another run at buying the rest of Sky PLC, the U.K.-based pay-TV giant, five years after its previous attempt was thwarted and as change roils the global media industry.

The companies in separate statements Friday said they had reached an agreement in principle for Fox to buy the 60.9% of Sky it doesn't already own for GBP10.75 ($13.52) per share in cash, or about $14 billion. The bid, which values all of Sky at about $23 billion, represents a 40% premium to its closing price Tuesday, the last business day before Fox made its approach.

The companies said they still must agree on "certain material offer terms," without being more specific. Among them is the size of the breakup fee one side would pay the other if the deal falls apart between signing and closing, people familiar with the matter said.

According to U.K. takeover rules, Fox has until Jan. 6 to firm up the offer or walk away. Even if both sides cement the deal, they could face a rigorous regulatory review.

Fox, like Wall Street Journal parent News Corp, counts Rupert Murdoch and his family as major stakeholders. The company Friday trumpeted the strategic benefits of bringing together its collection of global entertainment assets with Sky's distribution capabilities and premium content, including rights to European sports like the Bundesliga German soccer league.

Fox's board was motivated to make the move now as a global arms race to merge content and distribution heats up following AT&T Inc.'s proposed merger with Time Warner Inc., people familiar with the matter said. Fox believes a combination will help it tap into the direct-to-consumer streaming capability across Europe of Sky, which operates services such as NOW TV in the U.K. and Sky Ticket in Germany.

With Sky's help, Fox, which owns streaming services like Hotstar in India and a third of Hulu in the U.S., could position itself to better compete against streaming juggernaut Netflix Inc ., the people said.

The $85 billion AT&T deal also has raised concerns about that potential giant's ability to enforce tougher economics on rival distributors, including Sky, which purchases content from Time Warner's HBO. Fox's board viewed a wholly owned Sky as having a stronger hand in negotiations with AT&T, one of the people said.

The Time Warner deal, combined with the potential for eased regulations on big distributors in the Trump administration, "has everyone reassessing the competitive landscape," said Tony Wible, an analyst at broker Drexel Hamilton. "Vertical integration may be more important."

Fox stock fell 2% Friday, while Sky shares, which had dropped nearly 30% since the beginning of the year, shot up 27% on the news.

Fox has struggled to meet i ts earnings guidance over the past few years, in part due to film and broadcast-TV misses, and discontinued offering financial guidance as the U.S. pay-TV market has been buffeted by forces like cord-cutting. Consolidating Sky's cash flows would lessen Fox's reliance on the U.S. and clarify investor uncertainty over the stake, which has dogged Fox's stock, analysts said.

Fox's move was also driven in part by the recent slide in the British pound against the U.S. dollar, according to people familiar with the approach. The U.K. currency is down 16% against the dollar since Britons voted in June to exit from the European Union.

In 2011, Fox's predecessor dropped an earlier bid to take full control of Sky after a scandal over phone hacking at one of its U.K. newspaper titles sparked government resistance to the deal.

Following the scandal, Mr. Murdoch moved to distance the company's film-and-television businesses from its slower-growing publishing operations by splitting it in two in 2013. 21st Century Fox comprises a studio, TV stations and cable networks. News Corp owns newspapers like the Times of London and the Journal, HarperCollins Publishers, real-estate-related web properties and other assets.

Wall Street analysts say the split could ease the regulatory path for Fox this time. The deal is expected to undergo a review by the European Union's antitrust authority and may also require U.K. regulatory approval on public-interest grounds.

Fox is expected to note to U.K. regulators that, unlike last time around, it doesn't own any news outlets in the U.K. except through its existing minority position in Sky, and therefore a combination won't impact diversity in media ownership.

Tom Watson, a Labour lawmaker who led the drive to investigate the phone hacking, said Friday in a statement that if a deal was reached, "it will be incumbent on the regulatory authorities...to ensure that media plurality is upheld and that competition concerns are addressed." He added: "The bid must also be judged on its likely impact on the U.K. news market and the provision of robust and independent journalism."

Recently, the Murdoch family has shown new interest in Sky. In January, Fox Chief Executive James Murdoch was appointed Sky chairman, four years after he had stepped down from the role following the phone-hacking scandal.

James Murdoch has repeatedly told investors that owning a minority stake in Sky wasn't a "natural end-state." He also has often lauded Sky's products like its Sky Go streaming app and its focus on customer experience -- an area in which he has said U.S. cable and satellite operators lag. He led the bid with his brother Lachlan, who along with their father is executive co-chairman of Fox, a person familiar with the matter said.

Analysts have long speculated that Fox would try another takeover once the political climate in the U.K. settled and if Sky stock stumbled.

Sky was created in 1990 when Rupert Murdoch's then-year-old Sky Television merged with British Satellite Broadcasting to create the U.K.'s biggest digital subscription pay-TV provider. Since then, Sky has expanded in Europe, buying its sister companies in Germany and Italy from Fox and creating a pan-European pay-TV giant with 21.8 million customers across Germany, Italy, Austria, the U.K. and Ireland.

It was known as British Sky Broadcasting, or BSkyB, until 2015, when it changed its name to simply Sky to reflect its growing European footprint.

--Stu Woo, Dana Mattioli, Ben Dummett and Jenny Gross contributed to this article

Write to Shalini Ramachandran at [e-mail], Austen Hufford at [e-mail] and David Benoit at [e-mail]

(END) Dow Jones Newswires

December 10, 2016 02:47 ET (07:47 GMT)

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