21st Cen­tury Fox Sets $23.2 Bil­lion Pact to Ac­quire All of Euro­pean Pay TV Gi­ant Sky

Kuwait Times - - LIFESTYLE -

21 st Cen­tury Fox has clinched a pre­lim­i­nary agree­ment to take over Euro­pean pay-TV gi­ant Sky in a cash deal val­ued at about $23.2 bil­lion. The ac­qui­si­tion has been a long time com­ing for the Mur­doch clan, which has long sought full con­trol of the plat­form in which it al­ready holds a 39.1% stake.

Fox's ef­fort to bring Sky into the fold re­flects the newly ig­nited mar­ket for mega me­dia merg­ers. AT & amp; T in Oc­to­ber set an $85.4 bil­lion takeover of Time Warner that is now wend­ing its way through the fed­eral ap­proval process. Lion­s­gate this week closed on its $4.4 bil­lion ac­qui­si­tion of the Starz pay TV chan­nels.

Sky is Europe's lead­ing pay TV plat­form with 22 mil­lion sub­scribers across five coun­tries: Italy, Ger­many, Aus­tria, the UK and Ire­land. The sat­caster is an MVPD that also of­fers its own pro­pri­etary news, sports and en­ter­tain­ment chan­nels. It of­fers broad­band and mo­bile service in the UK and Ire­land. "In the past sev­eral years, 21st Cen­tury Fox has con­sis­tently stated that its ex­ist­ing 39.1% stake in Sky is not a nat­u­ral end po­si­tion," Fox said in a state­ment. "A pro­posed trans­ac­tion be­tween 21st Cen­tury Fox and Sky would bring to­gether 21st Cen­tury Fox's global con­tent busi­ness with Sky's world-class di­rect-to-con­sumer ca­pa­bil­i­ties, which have made it the num­ber one pre­mium pay-TV provider in all its mar­kets. It would also en­hance Sky's lead­ing po­si­tion in en­ter­tain­ment and sport, and re­in­force the UK's stand­ing as a top global hub for con­tent gen­er­a­tion and tech­no­log­i­cal in­no­va­tion."

Sky first re­vealed the ne­go­ti­a­tions in a state­ment is­sued Fri­day. Sky said its in­de­pen­dent di­rec­tors have been in ne­go­ti­a­tions with Fox ex­ecs and ac­cepted the of­fer price of $13.51 per share, which rep­re­sents a roughly 40% pre­mium over the clos­ing price of Sky shares on Dec. 6.

Ap­peal not clear

Sky's ap­peal to 21st Cen­tury Fox is clear. The com­pany has solid growth prospects, and the con­sol­i­da­tion Sky's earn­ings with 21st Cen­tury Fox would pro­vide a boost to Fox's earn­ings. More­over, fo­cus­ing cash and re­sources on ac­quir­ing Sky will ease any lin­ger­ing in­vestor con­cerns about Fox mount­ing a run at costly ac­qui­si­tions that might be more risky bets in tech­nol­ogy or me­dia. News of the deal sent Fox shares up by as much as $1 in mid­day trad­ing but the stock was down 2% to $27.92 as the close of trad­ing, de­spite the gen­er­ally warm re­cep­tion on Wall Street.

"We think in­vestors were con­cerned that (Fox) would splash out into growthier/techier/riskier ar­eas. Sky is well known to in­vestors, gen­er­ally liked, pos­si­bly highly syn­er­gis­tic and likely ac­cre­tive to (earn­ings). This should help in­vestors gain com­fort in (Fox) longer-term," RBC Cap­i­tal Mar­kets Steven Ca­hall wrote in a re­search note Fri­day.

Sky's state­ment warned that deal terms are not com­plete and that there's no cer­tainty of Fox mak­ing a for­mal bind­ing of­fer. But the me­dia biz has been wait­ing for years for Fox to pounce again on Sky af­ter its pre­vi­ous ef­fort to ac­quire the out­stand­ing 59.9% foundered five years ago amid Bri­tain's phone-hack­ing scan­dal. The tim­ing of the new bid is no surprise given the de­cline in Sky's share price in re­cent months and the steep fall in the value of the pound fol­low­ing June's Brexit vote, which has made the deal much cheaper in dol­lar terms for Fox.

The hack­ing scan­dal, in which some Mur­doch-owned tabloids were found to have il­le­gally in­ter­cepted voice­mail mes­sages on the cell phones of celebri­ties and even of a mur­dered teenager, badly dam­aged the Mur­dochs' stand­ing in Bri­tain and tor­pe­doed their at­tempted takeover of Sky just as a deal was on the cusp of be­ing done. Fox CEO James Mur­doch was in the thick of the con­tro­versy as he was the exec in charge of the news­pa­per divi­sion at the time. Mur­doch is also a for­mer CEO of Sky and has made no se­cret of his in­ter­est in con­trol­ling the busi­ness.

"It's in­evitable. You have AT&T buy­ing Time Warner, you have Com­cast-NBCUniver­sal. [And now] you have Fox com­bin­ing it­self with Sky. It's all these con­tent com­pa­nies mak­ing a bid as it re­lates to pay-TV as­sets," said Mary Ann Hal­ford, me­dia spe­cial­ist and se­nior man­ag­ing di­rec­tor with FTI Con­sult­ing in Lon­don.

Given that Fox has main­tained a war-chest ever since the aborted 2011 takeover, me­dia biz watch­ers have known that it was a mat­ter of when, not if, Fox would make an­other run at Sky af­ter the po­lit­i­cal smoke cleared. As of the most re­cent quar­ter, Fox has about $4.7 bil­lion in cash on its books.

"It's no longer as im­me­di­ately toxic as it would've been had they tried to pro­ceed at the time" of the hack­ing scan­dal, said Mathew Hors­man, a me­dia an­a­lyst in Lon­don and the au­thor of "Sky High: The In­side Story of BSkyB." "The desire to do it and pos­si­bly the logic in do­ing so was al­ways there."

Dif­fer­ent cor­po­rate con­fig­u­ra­tion

21st Cen­tury Fox has a dif­fer­ent cor­po­rate con­fig­u­ra­tion than its pre­de­ces­sor, News Corp., when the last run at buy­out out Sky was made. In 2012, in part be­cause of the hack­ing scan­dal, chair­man Ru­pert Mur­doch de­cided to split his op­er­a­tions into two com­pa­nies, 21st Cen­tury Fox for the me­dia and en­ter­tain­ment as­sets and News Corp. for the news­pa­per and pub­lish­ing as­sets in­clud­ing the Wall Street Journal, New York Post and UK news­pa­pers.

That split should help smooth the reg­u­la­tory ap­proval process for the deal in the UK Last time around in 2011, there were some hic­cups re­gard­ing News Corp.'s cross-own­er­ship of ma­jor TV and news­pa­per as­sets. But that con­flict does not ex­ist with 21st Cen­tury Fox as the ac­quir­ing ve­hi­cle. Hors­man said that he sees no reg­u­la­tory prob­lems in Europe that would sink the deal.

Sky said it has formed a com­mit­tee of in­de­pen­dent di­rec­tors to ham­mer out the ac­qui­si­tion deal. The com­mit­tee com­prises Sky's CEO Jeremy Dar­roch, Martin Gil­bert, An­drew Sukawaty, An­drew Grif­fith, Tracy Clarke, Adine Grate, Matthieu Pi­gasse, and Ka­trin Wehr-Seiter.

Ru­pert Mur­doch launched Sky, which had an ini­tial four chan­nels, in­clud­ing Sky News, as a UK satel­lite service in 1989. It added its sports service two years later, and exclusive sports rights be­come a pri­mary means to en­list new sub­scribers. Sky was seen as a long-shot bid to in­ject new com­pe­ti­tion into the UK TV mar­ket. The suc­cess of the com­pany against those odds, af­ter enor­mous in­vest­ment from News Corp. amid in­vestor skep­ti­cism, greatly en­hanced Mur­doch's rep­u­ta­tion as a vi­sion­ary me­dia mogul.—Reuters

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