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With a Saturday deadline looming in the long-running battle between 21st Century Fox and Comcast for European pay TV giant Sky, Britain’s takeover regulator on Thursday unveiled details of the auction process set to bring about a final decision.
The so-called Takeover Panel unveiled the process and rules of the formal auction, which would be the first such showdown of suitors since 2008 if none of the two suitors bows out at the last minute.
Under the previous timetable for the sale process, both suitors have so far had until Saturday at 5 p.m. London time to sweeten their offers for Sky, submit a “best and final” offer or bow out of the process. The Takeover Panel said Thursday though that if both sides stay in the running as of 5 p.m. London time on Friday, which is seen as likely at this stage, an auction with up to three rounds of cash bids will take place on Saturday.
“The auction procedure will consist of a maximum of three rounds, which will all take place on 22 September 2018,” the Takeover Panel said. “In the first round, only the offeror with the lowest offer as at the commencement of the auction (or, in the event of both offers being at the same price, the last offeror to revise) may make an increased bid. In the second round, only the offeror that was not eligible to make a bid in the first round may make an increased bid (and it may do so even if no increased bid was made in the first round by the other offeror). If the auction procedure has not concluded after the second round (which it will if no increased bid is made in the second round), there
will be a final round, in which both offerors may make an increased bid.”
In the final round, each party can make its offer “subject to the condition that the other offeror also makes a bid in the final round. The Takeover Panel also said that “there is no requirement that an increased bid must be higher by any minimum increment than the other offeror’s bid (although it must be higher than the last bid made by the offeror making the increased bid).”
After the auction ends, the Takeover Panel will publish the price tags of both final bids and both companies must on or by Thursday, Sept. 27 publish their final offer documents for shareholders.
The Takeover Panel noted that both suitors may end up offering the same final price. Also, the higher bidder in the auction doesn’t necessarily win Sky though as Sky shareholders will get two weeks to tender their shares to the buyer whose offer they consider best. “11 October 2018 shall be the last day on which either offeror’s offer can become or can be declared unconditional as to acceptances,” the Takeover Panel said. Given that Fox owns such a large stake in Sky already, some observers have suggested there is a chance that it could win the pay TV firm even if its final offer comes in slightly below Comcast’s.
“When a competitive situation continues to exist at 5 p.m. on day 46 [after the latter of competing takeover offers has been formally published, which is Sept. 22] and no alternative procedure has been agreed between the competing offerors, the board of the offeree company and the Panel,” a five-day auction process will take place, according to Britain’s Takeover Code.
The Takeover Panel worked out the process with Sky, Fox and Comcast, saying that “each of Sky, Comcast, Fox and The Walt Disney Company (as a person acting in concert with Fox) has agreed to the terms of the auction procedure.”
So far, Comcast has had the higher bid for Sky. It sweetened its offer for Sky to £26 billion ($34 billion), or £14.75 per share, this summer following news from Fox, which owns a 39 percent stake in Sky, that it had raised its offer to £24.5 billion ($32.5 billion), or £14 per share.
In early August, Fox published its formal offer document for Sky shareholders, but kept its takeover bid at a price below the offer from Comcast. The move gave Fox and Disney more time, making Sept. 22 the deadline for both suitors to raise their Sky bids.
Comcast in July bowed out of a showdown with Walt Disney for a large chunk of 21st Century Fox, including its Sky stake. Disney won the bidding war with an offer of $71.3 billion. Comcast said it would instead concentrate on Sky.
Enders Research Analysis analyst Alice Enders said both sides have a lot riding on the outcome of the auction. Fox can be “aggressive on Sky, especially backed by Disney’s firepower and [Disney chairman and CEO Bob] Iger’s desire for Sky,” she said.
But she added: “The combat for Sky is clearly also existential for Comcast’s Brian Roberts, even if the shareholders still seem confused by the logic of buying a pay TV company in Europe when the sector is manifestly in decline in the U.S. due to cord-cutting, whatever the reason.” Enders highlighted that “without Sky, they have only the NBCU contribution to diversification of revenues and geographies.”
She emphasized that the auction is designed to maximize the takeover price for shareholders, adding: “That’s what delivers the winner’s curse of ‘overpayment.’ Disney felt that £14 per share was a fair price (under the chain principle, Disney has to bid for Sky when Fox closes if Sky hasn’t closed), anything higher starts frittering away the ‘margin'”
Sky’s stock in the early London afternoon traded slightly higher at £15.82, or $21.02.
Buckingham Researh Group analyst Matthew Harrigan said in his best-case scenario, the auction could generate 6 percent upside and reach £16, or $21.26. “A higher bid in our view would be clearly overpaying for Sky although the effect on Comcast and Disney stock valuations should not be that quantitatively material – even if it matters psychologically as an assessment of M&A discipline,” he said.
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