Comcast (USA based Media and Telecom Company) outbid its rivals by offering the highest bid for takeover of Sky (British Media and Telecom Company). The auction took place on the 24th of September 2018). After the auction, “The Takeover Panel” (UK) issued a short statement: Comcast had tabled a knockout UK £30bn bid, which was swiftly recommended to shareholders by Sky’s independent directors.
The other contender in the auction was Disney. Comcast bid 17.28 pounds per share while Disney offered only 15.67 pounds per share. The equivalent US Dollar amount of the deal (on the date of auction) was around US $40 billion.
Brian L. Roberts, Chairman and Chief Executive Officer of Comcast said, “The acquisition will allow Comcast to quickly, efficiently and meaningfully increase customer base and expand internationally.” He further said, “We now encourage Sky shareholders to accept our offer, which we look forward to completing before the end of October 2018.”
There’s a lot to discuss in regards to the background of the auction contenders, impact that this acquisition will make on Comcast’s operations and overall effect on the media industry.
Rupert Murdoch’s Media Empire
Rupert Murdoch, an American media mogul, has always been a controversial, albeit a powerful figure in the media industry. Surprisingly, he got outflanked in this auction of Sky plc. Murdoch has a strong influence on global politics and has good ties with President Trump.
Murdoch, age 87 years, has been in the media industry since the 1950s. Throughout his career, he has been an intelligent deal broker. His business acquisitions, sale, mergers, consolidation, and restructuring make a long list. Four business deals of his media group are relevant to Sky’s auction.
- Acquisition of “20th Century Fox” in the USA in 1985 (for US $600 million). It was Murdoch’s foray into the world of digital media. Subsequently, he acquired independent TV channels of major US cities. The business was consolidated to form “The Fox Broadcasting Company”. The first TV show of this newly formed network was launched on 9 October 1986.
- Business restructuring of News Corporation (a Murdoch media group company) that resulted in the creation of “21st Century Fox” in June 2013.
- The launch of Sky Television in the UK in 1989. After several acquisitions, mergers and business restructuring, Sky plc was formed in 2014.
- Selling of “21st Century Fox” to Disney under a “purchase plan” of US $71.3 billion (July 2018). This gave Disney a major share of “21st Century Fox”. The US Justice Department gave its approval for the deal. However, “The New York Times” (27 July 2018) states, “Regulators in more than a dozen countries must still give their approval” (for the deal).
It is important to note that Murdoch restructured his business before selling “21st Century Fox”. “New Fox,” the spinoff company that he kept in his portfolio, includes Fox News, Fox Business Network, Fox Broadcasting and the sports cable networks FS1 and FS2, among others.
The deal number ‘4’ listed above is of significant importance and certainly became the grounds for Comcast’s “gloves off” style of bidding at Sky plc’s auction. Disney had initially approached “21st Century Fox” with a deal of US $52 billion. Comcast entered the bidding war with an offer of US $65 billion. Disney upped the ante to US $71.3 billion and clinched the “21st Century Fox” deal.
Murdoch through his “21st Century Fox” already had a 39% stake in Sky plc. This stake was part of the sale deal that took place between Disney and “21st Century Fox”. Disney (and Murdoch with his “New Fox”) had set eyes on Sky to increase their reach to Europe by accessing Sky’s 23 million customers. However, Comcast being the highest bidder succeeded in acquiring Sky.
Market reaction to Comcast’s acquisition of Sky plc
Comcast was determined to bag this deal, otherwise it would have lost a significant share of the digital media industry. Market analysts say Comcast paid a high price.
However, Reuters quoted research firm MoffettNathanson LLC saying, “Sky would be an albatross to Comcast. Comcast would like to have investors view Sky as a platform-agnostic collection of proprietary programming agreements that can serve as a springboard to create a global OTT (over-the-top) provider, and, to be fair, the company does indeed have many proprietary programming agreements,”.
On the other hand, S&P Global rating analyst Naveen Sarma highlighted that if Comcast succeeds in getting “all of Sky” (which means including 39 percent shares held by Disney) its borrowings could reach (nearly) US $114 billion. This debt will put pressure on its credit quality.
Positive Impact on Comcast’s Operations
Sky operates in European markets such as Britain, Ireland, Germany and Italy. This deal will give Comcast an immediate entry in online video streaming with its Now TV business. Market analysts see Comcast’s Now TV competing with Netflix across the globe. Sky’s relationships to distribute HBO entertainment content and Premier League soccer will increase Comcast’s footprint in the media industry over the next few years.
Disclaimer: This article/author stated this position on the 28th of September.