21st Century Fox Finalizes Offer to Take Full Control of Sky

Courtesy of Sky


The £10.75 per-share deal values the European pay TV giant at roughly $23.2 billion.

21st Century Fox has made its takeover offer for European pay TV giant Sky official.

Last Friday, the companies said that Fox had offered to buy full control of Sky in a £10.75 per share preliminary deal that values it at roughly $23.2 billion.

Fox currently owns a 39.1 percent stake in the pay TV company that operates in the U.K., Ireland, Germany, Austria and Italy. Under U.K. law, the companies had 28 days to finalize a deal or decide not to do so.

The companies on Thursday said they have now finalized a deal at that price, which will require approval from shareholders and U.K. regulators.

The possible combination would bring together content and distribution assets and follows telecom giant AT&T's recent agreement to buy entertainment powerhouse Time Warner for $85.4 billion. Comcast has been the main proponent of combining the two parts of the business since several years ago acquiring NBCUniversal.

Sky has a reputation for direct-to-consumer expertise, something entertainment companies have been seeking.

CEO James Murdoch at the UBS Global Media and Communications Conference in New York last week highlighted the need to ensure a good customer experience. Discussing authenticated apps, such as Fox Sports Go and FXNow, he said: "We're very focused on creating more capability around that user experience in a similar way that we did with the Skys, with Sky Go, where over half of Sky's customers actively use the over-the-top streaming product to consume the video, and that's sports, movies, TV series, etc. ... The streaming business is still one that we're leaning into very hard, because we think it's a better business than the passive linear queue of products that we've put down the classic channel model."

Fox had two ways to structure the proposed takeover. It didn't go with a tender offer, but the other option, a so-called scheme of arrangement, which requires a lower percentage of shareholder approval. Under the scheme, in the shareholder vote on the deal, Fox’s stake will be excluded. 

Fox predecessor News Corp., which later split its publishing and entertainment assets into separate companies, had in 2011 abandoned a previous attempt to buy full control of Sky amid the U.K. phone-hacking scandal.

"As the founding shareholder of Sky, we are proud to have participated in its growth and development," Fox said. "The strategic rationale for this combination is clear. It creates a global leader in content creation and distribution, enhances our sports and entertainment scale, and gives us unique and leading direct-to-consumer capabilities and technologies. It adds the strength of the Sky brand to our portfolio, including the Fox, National Geographic and Star brands."

It added: "Sky is a creative, commercial, and consumer powerhouse delivering its own content to customers across all platforms. Sky is the number 1 pay TV brand in all its key markets, with an exciting growth runway in each. The enhanced capabilities of the combined company will be underpinned by a more geographically diverse and stable revenue base. It will also create an improved balance between subscription, affiliate fee, advertising and content revenues. This combination creates an agile organization that is equipped to better succeed in a global market."

media assets that, like Sky, are cheaper in U.S. dollar terms due to the decline of the pound," says one analyst in a report titled "ITV - The Next Bid Target?""]

Stifel, Nicolaus analyst Benjamin Mogil said Thursday in a report: "With a combination of a strong sports load, as well as original programming, nearly half of Sky viewing is on their channels, a higher share than other markets where channels and distribution are vertically integrated. Given that the U.S. [distributors]/channel discussions continue to be focused on the breadth and duration of digital rights, this vertical integration on a national platform allows Sky a much broader digital offering, and as a result they were early movers with TV Everywhere and OTT services, which when combined with a broadband offering has led to stronger subscriber numbers."

He added: "Sky has also benefited from geographic diversity through multiple territory distribution right acquisitions of films and television product to thwart SVOD. As Fox continues domestically to search for more direct to consumer opportunities, we see Hulu as emulating Sky."

In the context of increasing convergence and rise of digital distribution, Mogil concluded: "The industrial value of an integrated direct to consumer platform in this environment is a very attractive one."