Walt Disney Agrees to Acquire Sky News, Annual Funding to Be Boosted to $130M

SKY headquarters in Isleworth on May 9, 2017 - Getty-H 2018
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The U.K. is ready to clear 21st Century Fox's bid for full ownership of Sky after public input on the proposed sale of the news network.

Walt Disney has agreed to a deal in principle to acquire the Sky News network from European pay TV giant Sky and boost its annual funding to about £100 million, or $130 million, for 15 years to help 21st Century Fox get final U.K. approval for its bid to take full ownership of Sky, in which it already owns 39 percent.

Sky News, which is losing money, is understood to currently have an annual budget of slightly below that promised level. The Guardian put it at $119 million, which would mean a promise of a roughly 10 percent increase. 

The commitment amounts to $2 billion over the 15-year period. It wasn't immediately clear how big Sky News' annual budget is currently.

U.K. culture secretary Matt Hancock unveiled the so-called undertakings tied to the agreement Tuesday and started a 15-day comment period for other parties. After that, the U.K. government must decide whether to give Fox its final clearance for a potential deal to buy the remaining stake in Sky, if it finalizes such a transaction.

A price tag for Sky News wasn't unveiled as a final sale agreement would be reached later. The undertakings offered include a commitment from Disney to operate and maintain a Sky News-branded news service for 15 years, "a restriction on Disney from selling Sky News for 15 years without the consent" of the U.K. secretary of state of culture, an extension of the funding commitment from Fox from 10 years to 15 years, "an increase in the total funds available to Sky News, to at least $132 million per year, with operating costs protected in real terms," and a formal commitment from Disney to preserve the editorial independence of Sky News.

Hancock recently cleared Fox's bid for full ownership of Sky under the condition of a sale of the news channel to Walt Disney or another party, a divestment for which full details still had to be hashed out in recent days.

Hancock also confirmed that Comcast's offer for Sky will not require a regulatory review in Britain, setting up a potential bidding war for Sky. Fox's current offer valued Sky at around 18.5 billion pounds, while Comcast's bid valued it at 22 billion pounds. Analysts have predicted Fox, with the support of Disney, would raise its offer for Sky if it gets regulatory approval for the deal.

Hancock sad he agreed with Britain's Competition and Markets Authority (CMA) that "divesting Sky News to Disney, as proposed by Fox, or to an alternative suitable buyer, with an agreement to ensure it is funded for at least 10 years, is likely to be the most proportionate and effective remedy for the public interest concerns that have been identified."

He added that a CMA report to his department set out some draft terms for such a divestment, "and Fox has written to me to offer undertakings on effectively the same terms," including "significant commitments" from Fox. But he added that "some important issues" remain, "which still need to be addressed." Concluded Hancock: "I need to be confident that the final undertakings ensure that Sky News remains financially viable over the long-term; is able to operate as a major U.K.-based news provider; and is able to take its editorial decisions independently, free from any potential outside influence."

Now, parties will have 15 days, during which the culture department must hear input on the deal. 

Fox in late 2016 agreed to buy the 61 percent of Sky that it does not already own, but the deal has been held up by an extended regulatory review amid debate about whether it would give the Murdochs too much influence in Britain.

Fox had previously offered to legally separate and ring-fence Sky News to seal its deal for Sky, or sell Sky News to Walt Disney, which in December struck a deal to buy large parts of Fox, including its Sky stake, for $52.4 billion. The culture secretary then agreed to a sale, but said further details would have to be worked out.

Fox said on Tuesday: "21st Century Fox welcomes today’s announcement by the Secretary of State for Digital, Culture, Media and Sport that he intends to accept the final undertakings proposed by 21st Century Fox and The Walt Disney Company with a view to clearing 21st Century Fox’s proposed acquisition of the remaining shares in Sky on media plurality grounds. The undertakings are now subject to a 15-day public consultation."   

Sky's independent board committee last month withdrew its support of the Fox deal after Comcast made a higher offer official. It didn't express support for one of the current bids over the other after Tuesday's decision, saying it "welcomes" the culture secretary's announcement. "The independent directors of Sky are mindful of their fiduciary duties and remain focused on maximizing value for Sky shareholders," the company said. "A further announcement will be made as and when appropriate."