By Stu Woo and Shalini Ramachandran
LONDON -- Comcast Corp. topped 21st Century Fox Inc. in a
weekend auction for Sky PLC, winning the British broadcaster with a
$38.8 billion bid that ends a monthslong takeover battle and
promises Comcast a greatly expanded international footprint.
Comcast's offer of GBP17.28 a share, or about $22.59 a share,
surpassed Fox's highest bid of GBP15.67 after three rounds of
bidding Saturday, in a rare auction held by British regulators. The
GBP29.7 billion valuation was by far the highest ever for such a
process in the U.K., which has conducted a handful of smaller-scale
auctions to settle intractable bidding wars. The winning bid
represents a premium of more than double Sky's value before Rupert
Murdoch's Fox put Sky in play some 21 months ago.
Because of the auction's setup, a sealed-bid auction in which
neither side knew what the other was bidding, Comcast paid GBP1.61
a share, or about 10%, more than needed to beat Fox.
Comcast won at a steep price. Its winning bid was up sharply
from its GBP12.50 bid in February and Fox's initial GBP10.75 bid in
December 2016.
The bidding on Saturday went down to the last of three rounds in
the unusual, government-mandated auction. In the first round, Fox
had the opportunity to raise its existing bid. Then, Comcast had
the opportunity to top that, triggering a third and final round.
That round was a "blind" round, in which neither side would be
aware of what the other was bidding.
In the end, Comcast's premium over Fox's bid translates to about
$3.6 billion for all of Sky shares. Still, auction veterans say it
is unfair to judge a bidder after the fact in a sealed-bid
auction.
Comcast Chief Executive Brian Roberts tightly oversaw the
bidding, alongside a select group of executives, including his
chief financial officer, top deal executive and outside advisers in
a London war room, according to people familiar with the matter.
Comcast felt it needed to win by a substantial margin to avoid
difficulty winning over any significant shareholders and ensure it
can close the deal smoothly, one of the people said.
Comcast CFO Michael Cavanagh, over a period of months,
strategized with his deal team about how best to beat the other
side. An enormous amount of planning went into how Comcast
maneuvered Saturday, the people said.
The U.K. Takeover Panel had the power to mandate -- and run --
the auction after both sides appeared ready to continue to outbid
each other outside of a formal auction process. The agency polices
deals involving U.K. companies.
The jostling over Sky -- which sells phone, TV and internet
services to 23 million European customers and produces its own
news, entertainment and sports programming -- was part of a broader
scramble by media companies to fortify themselves against a rising
threat from Silicon Valley giants such as Netflix Inc.
Comcast executives say a combination with Sky -- which like
itself is a giant in both content and distribution -- will boost
its user base to 53 million and add more heft to invest in
technology, programming and valuable sports-media rights. The
merger will also help Comcast diversify its revenue base beyond the
U.S., where cable cord-cutting is taking a toll on the traditional
TV business.
"We think [Sky is] more like Comcast NBCUniversal than any
company we've seen," Mr. Roberts said in February when announcing
the deal.
Still, Sky was something of a consolation prize for the cable
giant. This summer, it lost a bidding war to Walt Disney Co. for
Fox's entertainment assets. Disney agreed to pay $71 billion for
Fox's famed Hollywood studio and international assets, including a
39% stake in Sky that Fox had long held. That bigger deal is
expected to close in coming months.
If Fox had won this weekend's auction for Sky, Disney would
ultimately have taken 100% control of the pay TV company. Instead,
attention will now turn to whether Disney will sell the 39% stake
in Sky -- its value has increased by the bidding competition -- or
remain a minority partner for Comcast.
Analysts have raised the idea that Comcast could trade its 30%
stake in Hulu to Disney -- giving Disney overwhelming control of
the streaming-video service -- in return for the rest of Sky.
Comcast has said it values its position in Hulu and just named some
NBCUniversal executives to Hulu's board.
Mr. Roberts of Comcast has said he would be prepared to jointly
own Sky with a rival. Mr. Murdoch and his family are major
shareholders in Fox and Wall Street Journal parent News Corp.
Despite Comcast's win, the takeover isn't a certainty unless it
can win support from more than 50% of Sky's shareholders to support
the offer. That seems likely given the wide gap between the bids.
But it could still prove challenging if Fox decides against
tendering to the offer and that raises concerns for other investors
that Comcast won't be able to complete the deal.
Fox kicked off the chase for Sky in December 2016, offering
GBP10.75 a share. The deal faced regulatory and political delays,
and Comcast this February made a surprise GBP12.50-a-share offer.
Fox raised its bid to GBP14 a share in July, only for Comcast to
counter with GBP14.75 a share later that day. The U.K. Takeover
Panel held the weekend auction after neither side backed down.
Comcast executives have said acquiring Sky will further the
company's ability to counter Netflix, potentially with an
international streaming service. Sky already operates a streaming
service called NOW TV in several European countries and has been
investing in premium original shows in response to Netflix's
spending.
The merger could also yield benefits in news and entertainment
programming. Sky News and NBC News could share resources, and
larger scale could help the company bargain for the best content
deals.
That is especially true in sports, where deep-pocketed tech
companies such as Amazon.com Inc. and Alphabet Inc.'s Google are
throwing their hats in the ring. NBC has rights to the Olympics,
NFL games, Nascar and the Premier League, while Sky carries matches
from marquee European soccer leagues.
Investors haven't been as positive about the Sky pursuit.
"Investors in both Comcast and Disney are hoping against hope that
their company loses, " said veteran cable analyst Craig Moffett, of
MoffettNathanson research, before the weekend auction, noting that
the valuation for Sky had already gone "above any reasonable
estimate of fair value."
Comcast investors worry that the company is buying a satellite
broadcaster at a time when U.S. satellite companies like DirecTV
and Dish Network Corp. have hemorrhaged customers under competitive
pressure. Investors have also worried that Comcast's pursuit of Sky
and its failed bid for the Fox entertainment assets showed that
management wasn't confident in Comcast's core business.
Comcast shares slid considerably after it announced its initial
Sky bid in February, but rallied more recently and are 4.5% below
their February price. The company is using debt to finance its
all-cash offer.
Mr. Roberts has sought to allay Wall Street's concerns, noting
that Sky isn't simply a satellite TV business -- it also has a
broadband offering, a content studio and has invested significantly
in video technology. In June, Sky posted strong results, including
customer additions up 39% in the quarter. He has also said that
Comcast is confident in the strength of its core U.S. cable
business.
"Right now, I feel we're in a strategically great place and any
deals we're doing we're trying to play offense in a belief that we
over the long term can create exceptional shareholder value," Mr.
Roberts said at a recent Goldman Sachs investor conference.
--Ben Dummett contributed to this article.
Write to Stu Woo at Stu.Woo@wsj.com and Shalini Ramachandran at
shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
September 22, 2018 18:05 ET (22:05 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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