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Comcast Moves to Outbid 21st Century Fox For Sky

Comcast said it has made an offer to buy Sky that is 16% higher than 21st Century Fox’s bid for the European satellite broadcaster.

Fox’s bid has been held up by a British government review to determine whether Fox and the Murdoch family that controls Fox is a fit owner for the company.

Comcast has also been reported to be considering trying to make a higher bid for the cable and studio assets that 21st Century Fox has agreed to sell to the Walt Disney Co.

Comcast’s bid is £12.50, or about $17.46, per share, which it says implied an equity value of $31billion for Sky.

The potential for a bidding war hurt Comcast, Fox and Disney shares in early trading Tueday. Comcast stock was down more tha 5%, Fox was off 2% and Disney fell 3%.

Comcast said the combination with Sky would be beneficial to Comcast shareholder and be accretive to Comcast’s free cash flow per share in the first year.

“We think Sky is an outstanding company. It has 23 million customers and leading positions in the UK, Italy, and Germany. Sky has been a consistent innovator in its use of technology to deliver a fantastic viewing experience and has a proud record of investment in news and programming. It has great people and a very strong and capable management team,” said Comcast CEO Brian Roberts.

Related: Regulator Says Fox-Sky Deal Not in Public Interest

“Comcast intends to use Sky as a platform for growth in Europe. We already have a strong presence in London through our NBCUniversal international operations, and we intend to maintain Sky’s UK headquarters. Adding Sky to the Comcast family of businesses will increase our international revenues from 9% to 25% of Company revenues,” Roberts said.

Craig Moffett of MoffettNathanson Research, a top analyst, had a mixed recation to Comcast's bid for Sky. 

"Unfortunately, the bad outweighs the good," Moffett said.

On the postiive side, Comcast would get additional distribution for NBCUniversal content in Europe. And the deal is all cash, which allows Comcat to increase its leverage, which Moffett views as favorable for shareholders.

"The bad is that the underlying technology here is satellite, and Comcast will have to twist themselves into knots to explain why satellite distribution won't be just as obsolete in Europe as it already is in the U.S.," Moffett said.  "Yes, Sky is more than just a direct-to-home satellite TV distributor, but... well, let’s face it, Sky is a direct-to-home satellite TV distributor.  And yes, Sky is also a broadband provider… but it is a resale broadband platform, not a facilities-based one, and therefore it is one that, unlike in the U.S., lacks any competitive advantage whatsoever."

Moffett adds that it could get even worse if Comcast decided to bid for the Fox U.S. assets that Disney is acquiring. 

"The notion that Comcast might make a topping bid for Fox has weighed heavily on Comcast shares, which have entirely missed the market rebound in the days since their continued interest was first reported.  Expect that overhang to remain," he said.