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FOX Fox Corporation

28.62
0.02 (0.07%)
29 Mar 2024 - Closed
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Share Name Share Symbol Market Type
Fox Corporation NASDAQ:FOX NASDAQ Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.02 0.07% 28.62 27.98 29.24 28.74 28.39 28.65 1,173,836 00:00:00

Comcast Beats Out Fox to Acquire Sky -- 3rd Update

22/09/2018 8:40pm

Dow Jones News


Fox (NASDAQ:FOX)
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By Stu Woo and Shalini Ramachandran 

LONDON -- Comcast Corp. topped 21st Century Fox Inc. in a weekend auction for Sky PLC, winning the British broadcaster with a $38.8 billion bid that ends a monthslong takeover battle and promises Comcast a greatly expanded international footprint.

Comcast's offer of GBP17.28 of a share, or about $22.59, per share surpassed Fox's highest bid of GBP15.67 after three rounds of bidding Saturday, in a rare auction held by British regulators.The GBP29.7 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 auction's setup, a sealed-bid auction in which neither side knew what the other was bidding, Comcast paid GBP1.61 per share, or about 10%, more than needed to beat Fox. Professors of game theory, the branch of math that studies how competitors make decisions in strategic contests, say winners of such auctions shouldn't be judged after the bidding.

Comcast won at a steep price. Its winning bid came in at GBP17.28 a share, up sharply from its GBP12.50 bid in February and Fox's initial GBP10.75 bid in December 2016.

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 Netflix Inc.

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," Comcast Chief Executive Brian 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 Walt Disney 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 GBP10.75 a share. The deal faced regulatory and political delays, and Comcast this February made a surprise GBP12.50-a-share offer. Fox raised its bid to GBP14 a share in July, only for Comcast to counter with GBP14.75 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 like Amazon.com Inc. and Alphabet Inc.'s 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.

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 Dish Network Corp. 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.

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.

It is extremely rare to have the fate of such a large, publicly traded company be determined in a blind auction. Such processes are more typical in industries such as real estate, professional sports and telecommunications, where carriers often bid for spectrum in such auctions.

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.

In blind auctions in other industries, companies often recruit game theorists to predict possible outcomes, and help bidders establish both how to win the asset at auction -- and how to minimize the risk of overpaying. Investment bankers, who typically advise companies on deals, also have experience in blind auctions -- though such processes aren't typically run for such large, publicly traded firms.

In the end, Comcast paid a significant premium to what Disney and Fox were willing to pay -- bidding GBP1.61, or about $2.09, higher than Fox ultimately did. That translates to about $3.6 billion for all of Sky shares -- a large premium that Comcast may not have needed to pay had the end game not been a blind auction. Still, auction veterans say it is unfair to judge a bidder after the fact.

Comcast used a consultant on game theory, but Mr. Roberts tightly oversaw their bidding, alongside a select group of executives and advisers, according to a person familiar with the matter.

Write to Stu Woo at Stu.Woo@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com

 

(END) Dow Jones Newswires

September 22, 2018 15:25 ET (19:25 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.

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