Comcast Bid May Spark War for Sky

Comcast has raised eyebrows with its unsolicited $31 billion bid for U.K. satellite giant Sky, a move that both threw sand in the face of 21st Century Fox executive chairman Rupert Murdoch — who has been trying to consolidate the asset for years — and could solidify the U.S. MSO’s stature as king of all media.

Sky is the largest pay TV operator in Europe, with 23 million customers in the U.K., Germany and Italy. It owns original and licensed content and sports, including the coveted domestic rights to English Premier League soccer games. (Comcast’s NBCUniversal is the league’s U.S. rightsholder.)

Sky fits almost every criterion for a Comcast takeover — it’s a leader in its field, it is underappreciated, and perhaps more importantly it has ownership that is under pressure.

Fox, which owns 39% of Sky, has tried to consolidate the company for years. It first tried in 2011, but pulled its offer after a hacking scandal at its British tabloid newspapers made it unlikely a deal would be approved. Fox returned with a sweeter offer in December 2016, valued at £10.75 per share, but has run afoul of British regulators concerned with placing too much power in one company’s hands. Comcast’s bid, at £12.50 per share, represents a 16% premium to Fox’s offer.

Key to Disney Deal
Sky is an integral part of Fox’s sale of certain assets to The Walt Disney Co. — its content and sports assets jibe well with Disney’s own content holdings, many which are already distributed on the platform. Sky also has a compelling OTT product — Sky Now — which fits with Disney’s direct-to-consumer strategy, and Disney chief Bob Iger has called the satellite service a “crown jewel” among the Fox assets.

Fox had hoped to finish the Sky consolidation before the Disney deal closed and to transfer full ownership to the content giant once the deal was completed.

But now that is in limbo. According to BTIG media analyst Rich Greenfield, Fox has four choices: 1) increase its Sky offer and start a bidding war with Comcast; 2) start a conversation with Comcast for all of the Fox assets, while Comcast bids for the remaining 61% of Sky; 3) get Disney to work out a compromise with Comcast, like offering up its stake in Hulu, the Fox production studios (minus the Marvel content) and cable channel FX to back off; or 4) refuse to increase its bid, leaving Disney with the option of either selling its stake in Sky or being a minority partner with Comcast.

Options one and three seem most likely, Greenfield said.

Fox has said publicly that it stands by its December 2016 offer for Sky and hopes it will pass regulatory muster, while noting that Comcast hasn’t actually made a formal bid. Comcast, in announcing the deal publicly, said its bid was the first stage in the process and it hopes to work with Sky’s independent directors to hammer out a proposal.

The prospect of a mogul war between Comcast chairman and CEO Brian Roberts and Murdoch seemed not to sit well with some of the cable firm’s investors, who drove the stock down about 7% after the Feb. 27 announcement. But they seemed to settle down — the stock has started to slowly crawl back in subsequent trading — when it became apparent the deal makes more sense than they might have initially thought.

Gaining Global Reach
Sky would give Comcast tremendous scale, and scale is key to Comcast’s desire for Sky, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. With Sky’s 23 million customers, its set-top box technology and its content, Comcast could create a pan-European virtual MVPD and then further leverage its position as the No.1 distributor in the U.S. and Europe to launch a global service.