Com­cast tri­umphs in £30bn Sky bat­tle

US ca­ble gi­ant comes out on top af­ter 24-hour auc­tion goes to fi­nal round of blind bids, end­ing a seven-year pur­suit

The Sunday Telegraph - Money & Business - - Front page - By Christo­pher Wil­liams

COM­CAST last night emerged as the win­ner of an ex­tra­or­di­nary bat­tle for con­trol of Sky af­ter it de­feated the com­bined forces of 21st Cen­tury Fox and Dis­ney in a 24-hour auc­tion.

The colos­sus of the US ca­ble in­dus­try, which also owns the Hol­ly­wood stu­dio Uni­ver­sal and the broad­caster NBC, made a blind bid of £17.28 per share for Sky, valu­ing the com­pany at nearly £30bn.

Com­cast came out com­fort­ably ahead of Fox, which was ef­fec­tively con­trolled in the auc­tion by Dis­ney. The Star Wars maker has agreed to buy most of Fox, in­clud­ing its 39pc stake in Sky, in a sep­a­rate $71bn (£54bn) deal.

At the 5pm dead­line Sky’s big­gest share­holder made a fi­nal of­fer of £15.67 per share, less than the mar­ket value go­ing into the auc­tion. The highly un­usual process to set­tle the takeover bat­tle was over­seen by the Takeover Panel, the City’s merger reg­u­la­tor.

Com­cast’s of­fer won the im­me­di­ate rec­om­men­da­tion of Sky’s in­de­pen­dent di­rec­tors, led by deputy chair­man Martin Gil­bert, the joint chief ex­ec­u­tive of in­vest­ment gi­ant Stan­dard Life Aberdeen. Sky chief ex­ec­u­tive Jeremy Dar­roch was also field­ing bids from Com­cast and Fox along­side a pha­lanx of bankers and lawyers.

It sig­nals a ma­jor de­feat for the Mur­doch fam­ily in their lengthy pur­suit of full con­trol of Sky. Their first bid col­lapsed in 2011 as the phone-hack­ing scan­dal en­gulfed their news­pa­pers.

This time Fox agreed to ac­quire the 61pc of Sky shares it did not al­ready own in De­cem­ber 2016. The takeover was heav­ily de­layed by reg­u­la­tory scru­tiny, how­ever, which helped cre­ate the op­por­tu­nity for Com­cast to gate­crash the sale.

Ru­pert Mur­doch had in­tended to sell the whole of

Sky on to Dis­ney as part of a break-up of his in­ter­na­tional en­ter­tain­ment em­pire. Dis­ney was last night still due to ac­quire Fox’s mi­nor­ity stake.

Sky share­hold­ers will now vote on whether to ac­cept Com­cast’s bid. They have wit­nessed the bat­tle for con­trol of the com­pany more than dou­ble its price. Hedge funds loaded up on Sky shares in prepa­ra­tion for yes­ter­day’s fi­nal con­test and are now sit­ting on hun­dreds of mil­lions of pounds in pa­per prof­its. Fox’s own stake, which Dis­ney could choose to cash in, is val­ued at nearly £12bn by Com­cast’s bid.

The two sides sought own­er­ship of Sky in an ef­fort to bulk up to meet the chal­lenge from tech giants.

The rise of rel­a­tively cheap sub­scrip­tion stream­ing ser­vices from Net­flix, Ama­zon and oth­ers is threat­en­ing the tra­di­tional pay-tv busi­ness and means in­ter­na­tional scale and di­rect re­la­tion­ships with con­sumers are at a pre­mium. Sky has sub­scrip­tion re­la­tion­ships with about 23 mil­lion house­holds across Europe, as well as well-re­garded tech­nol­ogy and cus­tomer ser­vice op­er­a­tions.

Dis­ney’s chair­man Bob Iger, who is in­vest­ing heav­ily in a global stream­ing ser­vice to deal di­rect with con­sumers, called Sky a “crown jewel” among Fox’s as­sets. His Com­cast coun­ter­part Brian Roberts said it was a “unique as­set”.

The auc­tion brings to an end a twoyear bat­tle over the fate of Sky. It be­gan when Fox seized on a slump in Sky’s share price caused by rock­et­ing Pre­mier League rights costs and the fall in ster­ling fol­low­ing the Brexit ref­eren- dum to make a bid for the 61pc of the com­pany it did not al­ready own.

Sky’s in­de­pen­dent di­rec­tors ac­cepted a £10.75-per-share of­fer that val­ued the com­pany at £18.5bn, a pre­mium of 40pc on the mar­ket price. The deal drew crit­i­cism from City in­vestors who claimed the board had yielded too eas­ily to the Mur­doch ap­proach.

Fox then faced a series of reg­u­la­tory bar­ri­ers as crit­ics of the Mur­doch fam­ily raised con­cerns about their sway over Bri­tain’s me­dia land­scape.

Fox claimed that the pro­lif­er­a­tion of on­line news out­lets and rise of Face­book, Google and Twit­ter as dis­trib­u­tors, to­gether with tabloids’ lower cir­cu­la­tion, meant me­dia plu­ral­ity was not threat­ened.

How­ever, a re­view of the Fox bid for Sky by Of­com found the planned takeover raised con­cerns. The Gov­ern­ment or­dered an in­quiry by the Com­pe­ti­tion and Mar­kets Author­ity, par­tic­u­larly in re­la­tion to the im­pact full own­er­ship by Fox might have on Sky News.

By the time reg­u­la­tory scru­tiny was con­cluded Mur­doch had agreed to sell most of Fox to Dis­ney. The news in Novem­ber 2017 that the el­derly mogul was pre­pared to break up the em­pire he built over decades led to an at­tempt by Mr Roberts to mus­cle in on the deal.

Af­ter be­ing shut out in the US, Com­cast turned its at­ten­tion to Sky and in April out­bid Fox with a £12.50-per­share of­fer that val­ued the com­pany at £22bn. The scru­tiny of Fox’s plans meant that with­out the Mur­doch fam­ily’s po­lit­i­cal bag­gage, Com­cast was able to win reg­u­la­tory ap­proval for its bid within months. Fox fi­nally se­cured Gov­ern­ment ap­proval in July by agree­ing to im­me­di­ately hand con­trol of Sky News to Dis­ney and pro­vide the loss­mak­ing chan­nel with a 15-year fund­ing com­mit­ment.

Com­cast won its ap­provals at the same time, how­ever, set­ting up a straight fight over who would pay the most. An at­tempt by Mr Roberts over the sum­mer to dis­rupt the larger deal be­tween Fox and Dis­ney failed, al­though he forced Mr Iger to pay about $20bn ($15bn) more than agreed.

On Sky the bid­ding in­creased to £14.75 per share, valu­ing the com­pany at £26bn, but nei­ther side blinked be­fore a dead­line on Fri­day, prompt­ing the Takeover Panel to or­gan­ise the big­gest auc­tion in British his­tory.

It seems like an ig­no­min­ious end. Sealed bids are usu­ally the pre­serve of Bri­tain’s hor­ri­bly over­in­flated hous­ing mar­ket, a sign that it is over­heat­ing once again. And yet the fu­ture of one of our most il­lus­tri­ous broad­cast­ers will be de­cided pre­cisely in the same man­ner that a one-bed­room flat in Clap­ton, East Lon­don, might be sold to an un­sus­pect­ing hip­ster.

Amer­i­can me­dia gi­ant Com­cast and Ru­pert Mur­doch’s 21st Cen­tury Fox went head to head in a dra­matic blind auc­tion that started on Fri­day night. The City has been en­thralled. Such events are su­per-rare but af­ter a near two-year bid bat­tle, the con­test will be de­cided in a week­end af­ter the Takeover Panel, which poli­cies merg­ers and ac­qui­si­tions in the UK, or­dered an un­con­ven­tional so­lu­tion.

But while it is great spec­ta­tor sport, an auc­tion like this is fraught with dan­ger. Vet­er­ans of the Square Mile will re­call that the last time the fu­ture of a blue-chip com­pany of sig­nif­i­cant size was de­cided in this man­ner was An­glo-dutch steel­maker Corus in 2007. The win­ner of that fight still bears the scars to­day.

In­dia’s Tata wildly over­paid af­ter be­ing drawn into a fierce bid­ding war with Brazil’s CSN. Hav­ing ini­tially of­fered £4.1bn, Tata, in its des­per­a­tion to break into the Eu­ro­pean mar­ket, ended up pay­ing £6.2bn – a third more than its orig­i­nal bid.

The tus­sle was even­tu­ally set­tled dur­ing a quick-fire auc­tion last­ing seven hours with each side and its ad­vis­ers gath­ered in sep­a­rate lo­ca­tions, bid­ding via email.

The seller’s team waited in a third lo­ca­tion, where they re­lieved the ten­sion by play­ing pool and ta­ble foot­ball. Af­ter eight rounds, in­clud­ing a fi­nal round of sealed bids, Tata won.

It turned out to be one of the most dis­as­trous deals of the pre-cri­sis deal boom. Tata lost its shirt and then some.

The prob­lem with auc­tions of this na­ture is that they en­cour­age over-ex­u­ber­ance. A bunch of trig­ger-happy ex­ec­u­tives sur­rounded by pumped up in­vest­ment bankers in a bid­ding war with an arch ri­val is never go­ing to fos­ter re­straint. Of course peo­ple will get car­ried away and lose their judg­ment, es­pe­cially when you’re locked in a room for hours on end with bil­lions of pounds at your dis­posal.

Not that Sky share­hold­ers will care. They stand to make a killing once the drama has ended. The ex­tra­or­di­nary saga started in De­cem­ber 2016 with a bid from 21st Cen­tury Fox that val­ued Sky at £10.75 a share or £18.5bn. The lat­est, from Com­cast, is worth £14.75 or £26bn. How­ever, prior to the auc­tion the com­pany’s shares were chang­ing hands at £15.85 and hedge fund ty­coon Crispin Odey thought the bid­ding could top £18 a share.

Sky boss Jeremy Dar­roch won’t lose any sleep. He stands to make a fur­ther £30m on top of £85m he’s been paid dur­ing a decade at the top.

Clearly, there is no prospect of Sky end­ing up on the cor­po­rate scrap-heap like Tata’s Eu­ro­pean steel in­ter­ests nearly did. The broad­caster has a whop­ping 23m sub­scribers, su­perb tech­nol­ogy and great con­tent pro­duc­tion, which makes it hugely valu­able in a me­dia in­dus­try that has been turned up­side down by the ad­vent of stream­ing.

Though Sky alone isn’t big enough to com­pete with the eye-wa­ter­ing bud­gets of Ama­zon and Net­flix, own­ing it is the quick­est way for the big Amer­i­can beasts to nar­row the gap. The al­ter­na­tive is to spend years try­ing to build scale alone while the pair grow even stronger. Once the dust set­tles pre­pare for an­other bun fight.

‘A bunch of trig­ger­happy ex­ec­u­tives is never go­ing to fos­ter re­straint’

Tur­bu­lence ahead for Ryanair

Ryanair boss Michael O’leary has spent the best part of three decades pick­ing fights with ri­vals, reg­u­la­tors and even his own cus­tomers. In­deed such is his pen­chant for pugilism, one won­ders if he’s ever gone full Ben Kings­ley in Sexy Beast and started a fight with his own re­flec­tion.

Still, it has proved an ef­fec­tive ap­proach. His ap­par­ent dis­re­gard for crit­i­cism cre­ated an air of in­vin­ci­bil­ity that has en­abled him to re­main in charge for nearly 25 years and spear­head Ryanair’s dom­i­nance of Europe’s skies.

Th­ese days though, O’leary seems less for­mi­da­ble. Gone is the con­tempt for cus­tomers, re­placed by a more cud­dly im­age. And the com­pany is reel­ing af­ter a sum­mer of dis­con­tent, dur­ing which cabin crew and pilot strikes grounded hun­dreds of flights.

Now, the City is start­ing to ques­tion how Ryanair is run. A third of in­vestors have voted against the re-elec­tion of long-serv­ing bil­lion­aire Chair­man David Bon­der­man. Al­though the re­volt wasn’t enough to force him to re­sign, sev­eral ma­jor share­hold­ers have urged a cor­po­rate gover­nance over­haul.

It could be a ma­jor flash­point. O’leary is due to step down next year and has ex­pressed un­cer­tainty about a new term. Share­hold­ers are right to ex­press con­cerns but go­ing pub­lic with them is a high-risk ap­proach. Could dis­con­tent push him closer to the door be­fore the board has the chance to put in place proper suc­ces­sion plan­ning? O’leary will be hellishly hard to re­place. In­vestors face a del­i­cate bal­anc­ing act.

Ill-suited re­marks

We’ve heard it all now. Moss Bros has blamed its lat­est profit warn­ing on World Cup fever. Here’s an al­ter­na­tive rea­son: the chain makes unin­spir­ing, over­priced suits, and it has too many stores. Com­pa­nies that are more hon­est about their prob­lems face a much bet­ter chance of sur­vival.

Ru­pert Mur­doch’s 21st Cen­tury Fox as­sets in­clude the Fox En­ter­tain­ment Group – owner of the 20th Cen­tury Fox film stu­dio re­spon­si­ble for new thriller The Preda­tor

Un­pop­u­lar: David Bon­der­man

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