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As Comcast looks to expand international footprint, bidding war for Sky looms

March 5, 2018    //   By Vinjeru Mkandawire

U.S. cable giant Comcast Corp. has revealed ambitious plans to extend its international footprint with a rival bid for Sky plc, challenging 21st Century Fox Inc.’s efforts to take control of the British pay TV giant.

Comcast, which owns film studio Universal Pictures and NBCUniversal Media LLC’s broadcast TV network NBC (US), on Feb. 27 made a £22 billion takeover bid for Sky of £12.50 per share, which is a 16% premium compared to Fox’s offer of £10.75 per Sky share for the 61% of Sky that Fox does not already own.

Sky’s share price was up 20.64% at £13.33 at 5.44 a.m. ET on Feb. 27.

Comcast Chairman and CEO Brian Roberts said during a Feb. 27 analyst call that with Sky’s leadership in the “highly attractive” European market, combined with greater prospects for more international revenues, the deal offered “compelling” strategic benefits for shareholders.

He said NBC already produces content in multiple languages around the world and that an offer for Sky would accelerate those efforts.

“Local content is a strategy that has been working throughout the world,” Roberts said, adding that the group would follow Sky’s market-by-market approach in Europe.

A takeover of Sky would expand Comcast’s revenues from outside the U.S. from a 9% share of total earnings to 25%, Roberts added.

Liberum analyst Ian Whittaker thinks there is a strong rationale for Comcast to buy Sky; the acquisition would give it immediate leadership positions in the British, German and Italian pay TV markets and a presence in Spain.

‘Very powerful’ network

“At the moment, Comcast does have a presence in these markets, mainly through its NBCUniversal film and TV assets, but [Sky] would give it a very powerful distribution pan-European network,” Whittaker said.

Comcast already owns “Downton Abbey” producer Carnival Films, which is based in London, and Roberts said the company is prepared to fund Sky’s continued expansion across Europe.

“We have always said that Comcast has been sniffing around Europe,” said Paolo Pescatore, vice president, multiplay and media at CCS Insight.

“[Comcast’s] bid offers plentiful opportunities for growth beyond the U.S. and we have yet to see the same level of consolidation in this market,” he said.

Sky’s recently laid-out plan to deliver its entire TV product offering online without the need for a satellite dish was hailed by analysts as a game changer and a future-proof strategy in the face of the rapidly growing online video market.

“It is unsurprising that there is significant interest in Sky as it owns a wealth of content and has done a great job of moving into IP distribution. It has all the assets to compete with the web giants,” Pescatore said.

Despite Comcast’s higher offer, it is unlikely Fox will walk away. Pescatore “strongly” expects to see a bidding war for Sky.

Approval far from certain

Given the separate merger between Fox and Walt Disney Co., announced in December 2017, if a takeover of Sky by Fox is approved, Disney would assume full control of Fox’s shares in Sky. Disney is highly supportive of Fox’s takeover bid.

However, approval is far from certain. So far, only EU antitrust regulators and Ireland haveapproved Fox’s proposal to seize full control of Sky. The deal has faced regulatory headwinds in Britain in recent months.

U.K. antitrust regulator the Competition and Markets Authority provisionally ruled Jan. 23 that Fox’s proposed takeover of Sky would not be “in the public interest” on media plurality grounds, as a takeover by Fox would place Sky News, The Times and The Sun all in the hands of the Murdoch Family Trust.

This would lead to an increase of the Murdochs’ “significant influence” over public opinion and the political agenda in the U.K., the CMA said. The watchdog’s proposed remedies include spinning off or divesting Sky News, blocking the deal entirely or behavioral solutions, such as appointing independent directors.

The deal has also come under political scrutiny due to the involvement of some of Murdoch’s former newspapers, including the now-defunct News of the World, in the notorious U.K. phone-hacking scandal that involved more than 4,000 potential victims.

When approached by S&P Global Market Intelligence, Sky was unavailable to comment. However, it did release a statement Feb. 27 saying that “shareholders are advised to take no action” at this point.