US media conglomerate Comcast’s threat to disrupt 21st Century Fox’s takeover of Sky (SKY) is a reality as it makes its £12.50 per share cash bid official.
This is some distance north of the £10.75 bid on the table from Fox and accordingly, Sky’s board has withdrawn its recommendation for the Fox bid.
Sky’s shares are up 3.8% to £13.58 in response with the market clearly expecting Fox to respond.
The picture is complicated by Disney’s own bid for Fox’s media assets, including Sky.
Liberum analyst Ian Whittaker thinks Fox (and Disney) will counterbid but believes they will not go beyond £13.75 per share.
Since Rupert Murdoch’s Fox made an approach to snap up the 61% of Sky it did not already own in December 2016, the deal has been and remains the subject of regulatory scrutiny.
HOW ARE FOX AND DISNEY LIKELY TO RESPOND?
To address media plurality concerns, Fox had recently announced Disney would consider buying Sky News, even if its takeover of Fox’s other assets didn’t go through.
Several shareholders have argued the initial offer undervalued the shares particularly given some positive developments for the stock, most notably a good outcome from the latest round of bidding on Premier League TV rights.
Whittaker says: ‘The question now is whether Fox / Disney makes a knock-out bid to discourage any further Comcast offer and what it thinks this level is, without breaking the bank.
‘We think a credible counter-bid would be at £13.75 (plus the dividend payment), offering a £1.25 premium to the stated Comcast bid (i.e. 10% premium).
‘This implies a total acquisition price of c. >£30bn once the net debt is included (based on c. £7.4bn first-half net debt adjusted for the sale of Sky’s stake in Sky Bet) and also assuming the payment of the dividend.
‘Given we think a £13.75 bid is probably the limit, and the shares are already close to £13.50, there is little implied upside and so we move to ‘hold’, with our target price of £14.00 based on this £13.75 limit plus an assumption of a final dividend guaranteed by the bidder.’
