Comcast Makes $31B Takeover Offer for Sky Official, Trumping Fox's Bid

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Comcast chairman and CEO Brian Roberts

The cable giant kicks off a potential bidding war as a committee of Sky's board withdraws its formal support for the Fox deal and the Murdoch company says it will review its options.

U.S. cable giant and NBCUniversal owner Comcast on Wednesday made its unsolicited £22 billion ($30.7 billion) takeover bid for European pay TV giant Sky official, possibly setting off a bidding war with 21st Century Fox, whose late 2016 offer for full ownership of Sky it has now formally trumped.

"We are delighted to be formalizing our offer for Sky today," said Comcast chairman and CEO Brian Roberts. "We have long believed Sky is an outstanding company and a great fit with Comcast. Sky has a strong business, excellent customer loyalty, and a valued brand. It is led by a terrific management team."

In response to the formal bid, which comes at a 16 percent premium to the long-standing offer from Fox, which is controlled by the Murdoch family, Sky said it was ending its formal support for the Fox deal, without immediately expressing support for Comcast's offer.

"As a result of the announcement of this higher cash offer, the independent committee [of Sky's board] is withdrawing its recommendation of the offer announced by 21st Century Fox on 15 December 2016 and is now terminating the co-operation agreement entered into with 21st Century Fox on the same date," the company said. "Accordingly, certain provisions of the co-operation agreement will cease to apply, including the obligation on 21st Century Fox to pay a break fee of £200 million."

It added: "The co-operation agreement ensures, however, that certain obligations on 21st Century Fox continue after such termination, including, unless the independent committee agrees otherwise, that: (i) the 21st Century Fox offer cannot close without the approval of at least a majority of independent Sky shareholders and (ii) 21st Century Fox will continue to be bound by the standstill provisions agreed to in the co-operation agreement."

Fox in a statement said that it "notes the announcement made by Comcast Corporation of a firm intention to make an offer for the entire issued and to be issued share capital of Sky plc," adding that it "remains committed to its recommended cash offer for Sky announced on 15th December 2016 and is currently considering its options." Concluded Fox: "A further announcement will be made in due course."

Sky also said that its independent committee noted that "neither offer is currently capable of being put to shareholders," but highlighted that it "welcomes the post-offer undertakings and commitments Comcast intends to give in relation to Sky's existing business, including Sky News, and believes that these voluntary commitments should comprehensively address any potential public interest concerns."

It concluded: "The independent committee intends to co-operate fully with both parties to secure the relevant approvals in order to satisfy the pre-conditions for both offers. Until the relevant pre-conditions are satisfied, Sky shareholders are advised to take no action."

Comcast had on Feb. 27 outlined its "possible" offer, which is now firm and trumps an offer from Rupert Murdoch's 21st Century Fox, which was made in December 2016. Under the British takeover code, companies need to have financing lined up for a deal and fulfill certain other requirements before they can make a formal offer like Comcast has now done.

NBCUniversal's parent company on Wednesday confirmed that its all-cash offer was, as previously signaled, for £12.50 per share, which is a 16 percent premium to Fox's existing bid of £10.75 per share. 

Sky's independent board members are expected to now review the Comcast bid, and Fox will have to decide whether it wants to increase its offer. At the same time, Walt Disney, which has agreed to buy large parts of Fox, is also expected to figure in the considerations for a sweetened Fox offer for Sky.

"We think Fox/Disney (as a counterbid from Fox will likely mean agreeing it with Disney who are bidding for certain Fox assets, including Sky) will counterbid, but we see £13.75 as a limit for the counterbid," Liberum Capital analyst Ian Whittaker said in a first reaction. 

Comcast said it anticipates $500 million in revenue and cost synergies and highlighted that it intends to make the following commitments regarding Sky and investment in the U.K.: 1) Maintain annual expenditure in Sky News for 10 years, "at a level not less than incurred in Sky’s 2017 financial year"; 2) Establish an editorial Sky News board with the responsibility to ensure the editorial independence of Sky News for 10 years; 3) Maintain Sky’s U.K. headquarters in Osterley for five years; and 4) "[N]ot acquire any majority interest in U.K. newspapers for five years."

Additionally, Comcast reaffirmed the following "statements of intention" that it had previously given: "Continue to support the creative industries in the U.K. and increase investment in U.K. film and TV production; support innovation in the U.K. by continuing to support Sky’s technology hub in Leeds; continue to support young people in the U.K. by maintaining Sky’s Software Engineering Academy scheme; and continue to support Sky’s local community sports programs in the U.K."

A deal for Sky would expand Comcast’s international footprint to "more effectively compete in the rapidly changing and intensely competitive entertainment and communications landscape," the cable giant previously said. It reiterated that notion on Wednesday, saying: "Comcast believes that, combined, Comcast and Sky will create a business equipped to compete more effectively in a rapidly changing and highly competitive industry."

Sky's stock was up about 3 percent right after the Comcast update.

“We think Sky is an outstanding company," Roberts had said at the end of February in unveiling the planned offer. "It has 23 million customers and leading positions in the U.K., Italy and Germany. Sky has been a consistent innovator in its use of technology to deliver a fantastic viewing experience and has a proud record of investment in news and programming." 

Fox has long owned a 39 percent stake in Sky and offered to buy the remaining 61 percent in December 2016. Its bid has been dogged by a long-running regulatory review in Britain. Regulators have especially been expressing concern about the future of Sky News and the influence of the Murdoch family that controls Fox. In reaction to that, Fox has in recent weeks offered new concessions, including an extended commitment to U.K. news channel Sky News, to seal regulatory approval of the deal. Regulators final report on the Fox-Sky deal to the U.K. government has been due by May 1.

Just before Disney unveiled its $52.4 billion takeover deal for various entertainment businesses of Fox in December, Comcast had also been looking to make an offer for much of Fox, but bowed out, saying it never got a full chance in the process.