Sky Takeover Proves a Dream Trade for Hedge Funds

By Laurence Fletcher and Ben Dummett 

The bidding war for broadcaster Sky PLC had already provided hedge funds with one of their best trades of the year. Saturday's dramatic auction made it even better.

Paul Singer's Elliott Management Corp., Seth Klarman's Baupost Group and Crispin Odey's Odey Asset Management are among funds to have reaped huge profits from their positions this year. A 21-month sale process culminated in a dramatic auction on Saturday that saw U.S. cable giant Comcast Corp. beat 21st Century Fox Inc. with a $38.8 billion bid, or GBP17.28-a-share, or about $22.59 a share, to buy the broadcaster. That represents a 71% uptick in Sky's share price this year.

"It's been above anyone's expectations," said Tyler Tebbs, executive director of the event-driven group at broker Olivetree Financial. "It's been a big holding for most of the industry."

"I'm really very happy. It's been a long fight to get the right price," said Mr. Odey, who initially bought into Sky around 15 years ago, in an interview on Saturday. He recently increased his holding and said he now owns more than 1% of the company. Sky has helped his fund gain 28.8% through Sept. 14, ranking it as one of the world's best-performing hedge funds this year.

One of the biggest winners in this wave of deal-making has been Elliott, which has been accumulating Sky shares through the course of this year. It was holding 4.3% of the company, now worth GBP1.29 billion based on Comcast's winning auction price, as at Sept. 17, up from 1.1% in January.

Baupost, meanwhile, made hundreds of millions of dollars on its position in Sky. It was already holding 4.58% in late January, and had lifted this to 4.75% by August.

Elliott and Baupost declined to comment.

Sky had been on many investors' radar since Fox made an offer in December 2016 to buy the rest of the firm that it didn't already own for GBP10.75 a share. But the shares moved above that price after Sky retained the rights to broadcast English Premier League soccer matches at a lower than expected cost in February of this year. Comcast then initiated the takeover battle later that month by announcing plans to bid GBP12.50 a share for Sky.

The trade has, of late, become one on which many funds almost couldn't lose. The fact that many managers -- for instance Elliott -- had already accumulated sizable positions earlier this year meant that, even if no new bid emerged during the auction, the shares would have only fallen back to Comcast's share offer of GBP14.75. That would still have left most funds sitting on big profits.

"It was a good bet on Friday," said Mr. Odey. "You could see the 6% downside, and I didn't know if it was going to be 10% or 20%" upside.

Other funds to profit include Joshua Friedman and Mitchell Julis's Canyon Capital Advisors LLC, which had disclosed more than 1% position in January and had a 1.2% position as of Sept. 20. Similarly, Pentwater Capital Management also made an early bet disclosing more than 1% in January, according to filings. Neither Canyon nor Pentwater responded to a request for comment. D.E. Shaw also disclosed a stake above 1% in January and was holding 1.28% as of earlier this month.

Chris Hohn's TCI Fund Management has meanwhile also made large gains from positions in Comcast and then 21st Century Fox, Inc., which itself has agreed to sell a large chunk of its assets -- including its Sky stake -- to Walt Disney Co.

His fund began buying Comcast, which became one of his biggest positions, as early as June 2015 at an average price of $29, according to investor documents reviewed by the Journal, and saw the price rise above $40 earlier this year. At the end of March 2018 he had sold most of his position and was completely out by the end of June, according to regulatory filings.

But by the end of March this year he had built a $2.6 billion stake in Fox. That purchase was driven by his belief that the sector would see more mergers and acquisitions between content providers and infrastructure providers, according to a person familiar with his thinking. Fox's shares soared in June when Comcast made an offer to buy most of the firm, kicking off a bidding war with Disney.

By the end of June he'd increased that stake to $5.7 billion. While Fox's shares have given back some ground after Comcast pulled out in July, that still marks a large profit for Mr. Hohn's fund. His fund is up around 8% this year, according to people who had seen the numbers.

Write to Laurence Fletcher at [e-mail] and Ben Dummett at [e-mail]

(END) Dow Jones Newswires

September 23, 2018 07:52 ET (11:52 GMT)

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