Cable giant makes a play for Sky
Comcast tries to wrest the European pay-TV firm from Fox, Disney.
Comcast Corp.’s proposed $31-billion acquisition of European pay-TV provider Sky is an aggressive move to wrest the service away from Rupert Murdoch’s 21st Century Fox — and Walt Disney Co.
Tuesday’s surprise offer for Sky by Comcast, which owns NBCUniversal, is a broadside to both Fox and Disney. Murdoch was one of the architects of the London satellite TV service, and he considers Sky among his crown jewels.
Disney also wants to buy Sky as part of its proposed $52.4-billion takeover of Fox — but the Philadelphia cable giant’s pursuit of Sky now complicates that deal. Disney could be forced to bid separately for Sky or risk losing a coveted international asset.
“Sky would have a lot of strategic benefits for Comcast,” said Eric Schiffer, chief executive of Santa Ana investment firm Patriarch Organization. “But the Machiavellian view is that this is an attempt to throw a mammoth wrench into the Disney-Fox deal. Comcast’s offer could blow up Disney’s deal for Fox.”
Comcast — controlled by the ambitious Brian Roberts — has been stinging since Murdoch in December agreed to sell much of his entertainment empire to Disney. Comcast had tried to buy the Fox assets, but Murdoch was cool to Roberts’ approach — even though Comcast had offered more money than Disney.
Murdoch favored Disney’s $52.4-billion stock transaction because it would give his shareholders, including his family, a stake in one of the world’s most valuable entertainment companies. Fox executives also worried about the risk that regulators might not approve a sale to Comcast,
which had offered more than $60 billion, because Comcast has had a fraught relationship with regulators.
Even a Disney takeover of Fox is not a sure thing because regulators in multiple countries must give consent. And now Disney and Fox separately must decide how to respond to Comcast’s brazen attempt to poach a key asset.
“Murdoch is the shrewdest of them all — he’s not going to lose sight of one of his crown jewels,” Schiffer said.
Fox probably will have to increase its offer, which remains on the table. Comcast on Tuesday said it was prepared to pay Sky stockholders $17.44 in cash for each share — 16% more than what Fox offered.
“21st Century Fox remains committed to its recommended cash offer for Sky announced on 15th December 2016,” Fox said in a statement.
Sky has nearly 23 million customers in Britain, Ireland, Germany, Austria and Italy — fertile ground for any U.S. media company with global ambitions. Sky also owns TV channels, including news and sports channels that hold key Premier League soccer rights. Its shares surged 20% after the proposed bid was announced.
Comcast is a colossus in the U.S., but it has a modest profile overseas. Buying Sky would give Comcast a beachhead in Europe as growth in the U.S. has stalled.
“We think Sky is an outstanding company,” Roberts, chairman and chief executive of Comcast, said in a statement. “Comcast intends to use Sky as a platform for growth in Europe.”
His company’s core business is providing broadband internet and pay-TV service to more than 29 million customers in such markets as Philadelphia, Chicago, Denver and San Francisco.
But as more consumers cut the cable cord — and younger adults forgo traditional TV bundles in favor of streaming services — Comcast must compete against Amazon.com Inc., Apple Inc. and Netflix Inc., which has experienced strong overseas growth.
Buying Sky would give Comcast access to millions of new customers — and an important vehicle to distribute its NBC channels, increasing their exposure during a period of digital disruption.
“Netflix and Amazon have powered into town with very attractive offers for young and old audiences, and it’s a major challenge for these traditional broadcasters,” said Linda Sullivan, who heads the media and digital practice for a leading London advisory firm, Cavendish Corporate Finance. “Even the clever and mighty Murdoch empire has seen that they better align themselves with someone even bigger.”
Comcast’s curveball could be the latest heartbreak over Sky for Murdoch and his family. The 86-yearold media baron from Australia helped create the British pay-TV service in 1989 to challenge the entrenched British Broadcasting Corp. His gambit worked, and Sky has blossomed over the years to become one of Europe’s most popular brands.
“This is an asset that Murdoch has always wanted to buy,” Schiffer said.
But the Murdoch family has been thwarted in its attempts to control Sky.
Fox currently owns 39% of the satellite TV service and has been trying for years to complete a full buyout. In December 2016, Fox offered $15 billion to buy the remaining 61% of Sky that it does not own, but British authorities have been dragging their feet. Regulators have expressed concern that the Murdoch family — which also owns prominent newspapers in London and has a history of involvement in British politics — would have too much sway over media.
“There are views around the Murdoch name — both positive and negative,” Sullivan said.
An earlier attempt by the Murdochs to buy all of Sky was derailed by the phonehacking scandal at the firm’s London tabloids. Amid a political firestorm, the Murdochs in 2011 withdrew that bid for Sky and instead separated their empire into two companies.
Fox Chief Executive James Murdoch, the mogul’s youngest son, has long championed buying Sky.
He once managed Sky, now serves as its board chairman and has spent the last year trying to coax wary regulators to approve the Fox takeover.
Britain’s Competition and Markets Authority plans to release a report in May about whether Fox should be allowed to purchase Sky.
Sky Secretary Chris Taylor said that “independent directors of Sky are mindful of their fiduciary duties and their obligations under the U.K. takeover code.”
He said Sky would respond further should Comcast formalize its offer.
British law requires parties to first announce their intention to make a bid before engaging in merger talks.
Disney might separately decide to make its own bid for the Sky shares that Fox does not own. A Disney spokesperson did not respond to a request for comment.
For British observers, the scramble for Sky is high drama — in part because of the intrigue surrounding the Murdoch family.
“Will this be a spoiler to the Disney deal for Fox?” Sullivan said. “It’s fun and games, isn’t it? It’s jockeying for position — and Comcast is playing it rather nicely.”