The Competition and Markets Authority (CMA) says 21st Century Fox’s £11.7bn bid for Sky (SKY) is not in the public interest.
This may be perceived by many investors as putting the £10.75 per share takeover deal at risk. Yet somewhat surprisingly shares in Sky are up 2.5% to £10.29 on the news.
This either suggests the market thinks the CMA’s objections can be overcome or it might force Disney, currently engaged in a bid to buy Fox’s entertainment assets (including its 39% stake in Sky), to launch its own separate, higher bid for Sky.
The CMA, which is due to report to culture secretary Matthew Hancock in full on 1 May, has ‘media plurality’ concerns.
Essentially the comment implies the transaction would give media mogul Rupert Murdoch too much influence in the UK. The CMA is consulting on possible remedies which could allay its concerns.
Liberum analyst Ian Whittaker downgrades his rating on Sky shares from ‘buy’ to ‘hold’ and his price target from £10.60 to 930p.
He says: ‘The CMA does say that a remedy along the lines of what was offered in 2011, i.e. a divesture of Sky News could be appropriate. However, it does seem to suggest there would be a long list of criteria that would need to be met to be satisfied. Its language on behavioural remedies looks more sceptical.
‘Therefore, we think there is an increased risk that the acquisition does not go through. Given our “buy” recommendation was based on the gap between the share price and the acquisition price and the probability of the deal going through, it is clear that the risks have now increased.’
Shore Capital analyst Roddy Davidson plans to review his ‘hold’ recommendation after Thursday’s half-year results from Sky but says: ‘We believe that the market’s focus will revert to less positive considerations including: (a) sports rights inflation; (b) the impact of economic uncertainty on consumer spending; (c) declining pricing power and; (d) the longer-term sustainability of its subscription-based model.’
