Comcast weighs next step in Sky bidding war

Comcast is exploring another counterbid for Sky after Rupert Murdoch’s 21st Century Fox agreed new terms to buy the pan-European media company in a deal worth £24.5bn.

The US cable group, which also owns NBC Universal, is considering increasing its offer to trump the £14 per share deal unveiled on Wednesday between Fox and Sky, according to two people briefed on the plans.

The revised Fox-Sky agreement, which was announced two days after the Financial Times reported that Fox was preparing a new offer, is the latest twist in a long-running saga that has pitted the world’s largest media companies against each other.

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.

Comcast, meanwhile, has mounted a rival effort to buy the Fox assets, which include the Sky stake, its movie studio and cable channels.

The latest Fox offer for Sky is a significant premium to the original £10.75-per-share deal it made with the London-based company in December 2016. It also trumps Comcast’s most recent £12.50-a-share offer.

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

“We welcome this increased offer which is 30 per cent higher than 21CF’s initial bid and 12 per cent above Comcast’s,” said Martin Gilbert, head of the committee. “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 in recent days for Sky shares, which closed on Tuesday at £15.01 giving the company a market value of £25.6bn. Sky has net debt of £7.4bn, according to FactSet data.

The shares slipped back to £14.94 by the close of 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 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.

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.

Fox said on Wednesday that Disney provided its consent to the extra debt 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.

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, more than 27 per cent higher than its previous forecast.

Disney hopes to add programming and films from Fox to a global streaming service 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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