Comcast this week came good on its promise of a bid for Sky, throwing a spanner in the works of 21st Century Fox’s moves to consolidate the pay TV operator ahead of its own acquisition by Disney.
The £22 billion (€25 billion) bid means it is now far from clear how Fox’s plans will pan out. Fox will be under pressure to up its bid for the UK-based pay TV operator, and it seems likely that it will do so, because Sky is a keystone of Disney’s ambition to build an international business spanning content creation and distribution that will give it the scale to compete head-to-head with big tech players converging on the coveted media space.
Fox now faces uncertainty on two fronts. It is still not cleared to complete its acquisition of Sky, which the UK Competition and Markets Authority is investigating on grounds of whether it will compromise media plurality. There is still plenty of political opposition to a deal, and it is still the case that the CMA’s provisional finding was that the deal s not in the public interest. That has led Fox to offer to either sell Sky News or bring about a legal separation and ring-fencing of the channel.
Fox said that both proposals “comprehensively address any plurality concerns the CMA may have” and would guarantee Sky News’ future and editorial independence.
Interestingly, the fate of Sky News figured prominently in Comcast CEO Brian Roberts’ remarks about how Sky fitted into Comcast’s wider strategy to UK investors. He said that Comcast would “fully maintain” Sky News’ “strong track record for high-quality editorial and journalistic independence”.
Speaking separately to US investors and analyst, Comcast finance chief Michael Cavanagh said that the deal was “not trying to solve for just being international for the sake of being international” and emphasised that Comcast was “not striving for diversification internationally just for its own sake”. The attraction of the deal was Sky’s specific value and performance, he said.
When Comcast initially indicated it would bid for Sky in February, ahead of the firm offer that was announced this week, there was much speculation about the US cable giant’s intentions, particularly in view of the fact that it was known to have previously made a move to acquire 21st Century Fox itself , a move that was rejected by Fox, supposedly on the grounds that it was less likely to be successfully executed than Disney bid.
The firming up of the offer indicates that Comcast is serious, but it remains the case that one major effect is to discomfit both Fox and Disney.
Fox and Disney are now likely to be locked in discussion about how to proceed. If Fox raises its bid for Sky, that will have an impact on the terms of Disney’s bid for Fox. If Comcast succeeds in acquiring the bulk of Sky’s shares – but not Fox’s 39% – the value of Fox to Disney is diminished significantly.
If Comcast succeeds in its bid and an amended Disney-Fox deal is completed, the scene would be set for Sky to emerge as an uncomfortable Disney-Comcast JV – a situation that would be unlikely to persist for the long term. Disney could offer to acquire Comcast’s stake at a premium and for Comcast to sell, or vice versa.
The stakes for both companies are high – but particularly for Disney. Another scenario could be for Disney to bid separately for Sky ahead of completing an amended Fox deal, but it will be wary about getting into a bidding war. The most likely scenario remains a counter-bid by Fox, backed by Disney. Whatever the outcome, it seems that Fox and Disney are likely to have to cough up quite a bit extra to realise their dream.
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