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Fox makes formal bid for Sky

December 9, 2016

By Colin Mann

The much-rumoured and anticipated bid by 21st Century Fox to take control of Sky is now a reality.

In a Statement, the Independent Directors of Sky plc (Sky) say that they note today’s share price increase, and announce that Sky has received an approach from 21st Century Fox, Inc. After a period of negotiation, the Independent Directors of Sky and 21st Century Fox have reached agreement on an offer price of £10.75 (€12.83) per share in cash, less the value of any dividends subsequently paid by Sky (the Proposal). However, certain material offer terms remain under discussion and there can be no certainty that an offer will be made by 21st Century Fox, nor as to the terms of any such offer.

The Independent Directors, who have received financial advice from Morgan Stanley, PJT Partners and Barclays, have indicated to 21st Century Fox that they are willing to recommend the Proposal to Sky shareholders, subject to reaching agreement on the other terms. In providing advice to the Independent Directors, Morgan Stanley, PJT Partners and Barclays have taken into account the commercial assessments of the Independent Directors.

The Proposal represents a premium of 40 per cent to the closing price on 6th December, being the last business day prior to the initial proposal being received from 21st Century Fox, and a premium of 36 per cent to the closing price on 8th December, being the last business day prior to this announcement.

Sky has formed an independent committee of the Board (the Independent Committee) to consider the terms of the Proposal. The Independent Committee comprises Martin Gilbert, Andrew Sukawaty, Jeremy Darroch, Andrew Griffith, Tracy Clarke, Adine Grate, Matthieu Pigasse and Katrin Wehr-Seiter, each of whom the Board of the Company considers to be free from conflicts of interest with regard to the Proposal (the Independent Directors). The members of the Independent Committee will act in accordance with their duties as directors and, in particular, in order to protect the interests of shareholders.

Discussions are continuing and a further announcement will be made in due course as appropriate.

In accordance with Rule 2.6(a) of the Code, 21st Century Fox is required to clarify its intentions by no later than 5.00pm on Friday 6th January 2017 (or such later date as the Takeover Panel may consent to in relation to 21st Century Fox, at the request of Sky), by either announcing a firm intention to make an offer or that it does not intend to make an offer.

The announcement has not been made with the consent of 21st Century Fox, which issued its own Statement, noting the Sky announcement and confirming that it has reached an agreement in principle in relation to a possible offer to acquire all of the outstanding shares in Sky it does not already own at a price of £10.75 per share payable in cash less the value of any dividends subsequently paid by Sky. “However, certain material offer terms remain under discussion and the Possible Offer may or may not lead to an offer being made by 21st Century Fox,” it stated.

“In the past several years, 21st Century Fox has consistently stated that its existing 39.1% stake in Sky is not a natural end position. A proposed transaction between 21st Century Fox and Sky would bring together 21st Century Fox’s global content business with Sky’s world-class direct-to-consumer capabilities, which have made it the number one premium pay-TV provider in all its markets.  It would also enhance Sky’s leading position in entertainment and sport, and reinforce the UK’s standing as a top global hub for content generation and technological innovation,” it added.

Sky shares jumped 32 per cent in late trading in London following the announcement. According to Reuters’ calculations, Fox will pay £11.25 billion for the stake in Sky that it does not already own.

Such a move has seemed inevitable since the end of January 2106 when James Murdoch became Chairman of Sky, succeeding Nick Ferguson, Chairman since 2012. Murdoch previously served as Chairman of the former BSkyB from 2007 to 2012, but resigned in the wake of the phone-hacking scandal at the News of the World newspaper and News Corp dropping its plans to take over the 61 per cent of BSkyB it did not own.

Murdoch revealed in October 2015 that at some stage the company intended to take full control of Sky, some four years after it was forced to drop its plans.

In a detailed interview in the Hollywood Reporter (together with brother Lachlan) Murdoch noted that following the acquisition by BSkyB of its German and Italian counterparts and the separation of News Corporation’s print and TV assets, Fox had 40 per cent of an unconsolidated asset. “The Sky businesses, we’ve only just brought them all together into one big European platform. That integration is going really well. The company is moving at a very fast pace and has grown in value enormously. We’ve also been clear that over time, having 40 per cent of an unconsolidated asset is not an end state that is natural for us. Right now, we’re 100 per cent focused on supporting the company to get this integration going and get it done for the business to move forward, so there are no plans on the agenda right now,” he suggested.

“We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies, but it has become clear that it is too difficult to progress in this climate,” said then News Corp deputy chairman and president Chase Carey in a statement on July 13 2011. “News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it.”

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