Comcast wins Sky auction

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Ending 21 months of uncertainty over the ownership of the pay-TV operator, Comcast has won the auction bidding process for Sky, its £17.28 (€19.19) offer price topping that of rival bidder 21st Century Fox (£15.67), which implies a value of £30.6 billion for the fully diluted share capital of Sky.

On September 20th, the UK’s Panel on Takeovers and Mergers called the auction for September 22nd on the basis that neither Fox nor Comcast had declared their offer final, such that either offer may be increased or otherwise revised, deeming that a competitive situation existed for the purposes of Rule 32.5 of the Takeover Code.

“This is a great day for Comcast,” declared Comcast Chairman and CEO Brian L. Roberts, who described Sky as “a wonderful company with a great platform, tremendous brand, and accomplished management team”, adding that the acquisition would allow Comcast to  increase its customer base quickly, efficiently and meaningfully, and expand internationally. “We couldn’t be more excited by the opportunities in front of us. We now encourage Sky shareholders to accept our offer, which we look forward to completing before the end of October 2018,” he concluded.

On December 15th 2016, Fox announced a firm intention to make a recommended cash offer for the shares in Sky not already owned by it at £10.75 per Sky share. That offer was to be implemented by way of a scheme of arrangement and was subject to a number of pre-conditions, all of which have now been satisfied or waived.

On February 27th 2018, Comcast announced that it was considering making an offer for Sky, to be implemented by way of a contractual offer subject to a 50 per cent plus 1 share acceptance condition. On April 25th 2018, Comcast announced a firm intention to make a cash offer for Sky at £12.50 per Sky share on this basis. That offer was also subject to a number of pre-conditions, all of which have now been satisfied or waived. Later that day, the independent directors of Sky announced that they were withdrawing their recommendation of the Fox offer.

On July 11th 2018, Fox announced an increased recommended cash offer for Sky at £14.00 per Sky share. Later that day, Comcast announced an increased recommended cash offer for Sky at £14.75 per Sky share.

On July 13th 2018, Comcast published its offer document. On August 7th 2018, Fox elected to switch from a scheme of arrangement to a contractual offer with an acceptance condition of 75 per cent of the shares to which the offer relates and also published its offer document.

Sky said that as the price of the final Comcast offer was materially superior, it was in the best interests of all Sky shareholders to accept offer. “Accordingly, the Independent Committee unanimously recommends that Sky shareholders accept the Comcast Offer, and in order to ensure the successful closing of the Comcast Offer, urges shareholders to accept immediately,” it said in a Statement.

“Throughout the extended offer period, the Independent Committee of Sky has been mindful of its fiduciary duties and obligations under the Takeover Code, and has focused on maximising value for Sky shareholders. Importantly, this included the negotiation of a Cooperation Agreement with 21CF in December 2016 which included certain safeguards for independent shareholders, including a standstill preventing 21CF from acquiring shares. This Cooperation Agreement facilitated the then recommended offer by 21CF but preserved a level playing field in order not to foreclose any potential competitive interest,” it advised.

Sky said the Comcast offer price represented an excellent outcome for independent Sky shareholders:

  • a premium of 125 per cent to the closing price of £7.69 on 6 December 2016, the last business day before 21CF’s initial approach;
  • a multiple of 15.5 times Sky Adjusted EBITDA of £2.349 billion for the twelve month period ended 30 June 2018;
  • a ten-year total shareholder return (since 1 July 2008) of +402 per cent, versus the FTSE 100 total shareholder return over the same period of +97 per cent.

“We consider the Comcast Offer to be an excellent outcome for Sky shareholders, and we are recommending it as it represents materially superior value,” stated Martin Gilbert, Chairman of the Independent Committee of Sky. “We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast Offer.

“On behalf of the Independent Committee of Sky, I wish to thank [CEO] Jeremy [Darroch] and [COO] Andrew [Griffiths] for their outstanding leadership of the business throughout the twenty-one month bid process and congratulate everyone at Sky on creating such a successful company that has attracted strategic interest from one of the world’s greatest media companies.”

“This is the beginning of the next exciting chapter for Sky,” said Darroch. “Brian and his team have built a great business and we are looking forward to bringing our two companies together for the benefit of our customers and colleagues. As part of a broader Comcast we believe we will be able to continue to grow and strengthen our position as Europe’s leading direct to consumer media company. Today’s outcome is down to the hard work of tens of thousands of people who have built and developed this business together over the last 30 years. Sky has never stood still, and with Comcast our momentum will only increase.”

In a Statement, Fox noted the increased cash offer for the fully diluted share capital of Sky by Comcast, and that it had been recommended by the Independent Committee of Sky. “21CF is considering its options regarding its own 39 per cent shareholding in Sky and will make a further announcement in due course. Sky is a remarkable story and we are proud to have played such a significant role in building the incredible value reflected today in Comcast’s offer,” it said.

According to technology, media and telecoms analyst Paolo Pescatore, a “knockout” bid was the only way to settle the takeover battle and to secure Europe’s most prized pay-TV asset, describing Comcast’s winning bid as “unsurprising” given the value that Sky will bring to the company in the future.

“Attention now quickly turns to integration with minimal impact on the business. However, you have to expect some cost-cutting measures,” he warned.

“There are significant growth opportunities in Europe. The combined entity will be a considerable force. Expect to see other American (including the losing party) and Asian providers to make similar moves for other European content and media assets.”

Pescatore suggested that Sky and its customers would now benefit from being part of the wider group, gaining access to more services, products and features, together with financial security to some extent to bid for key costly premium content rights, in particular sports, which he said was arguably the company’s prized asset with the Premier League.

“Exciting times ahead with changing consumer behaviour and all providers piling into video further increasing the cost of rights,” he concluded.

According to Mo Hamza, senior analyst at Kagan, the TMT arm at S&P Global Market Intelligence, Sky represents a unique opportunity that is likely to be transformational for Comcast. “The bold £17.28 bid highlights the potential for a strategic alignment between two pay-TV giants with similar expansion ambitions and diversified asset investments in content ownership and distribution — Sky’s 119 TV networks in Europe and Comcast’s NBCUniversal Media LLC ownership — as well as technology including virtual reality, IP distribution, next-generation advertising and over-the-top video. In recent years, major US media and communications sector investment into Europe has largely been led by Liberty Global or major media companies such as Discovery and Viacom. This deal is as much about next-generation distribution as it is about content.”

“The deal, which gives Sky an enterprise value of £36.31 billion and represents a LTM EBITDA multiple of 14.8, more than doubles Comcast’s multichannel subscriber base of 22.1 million with Sky pay-TV distribution across five markets representing an estimated 20.3 million customers. Three pay-TV markets – the UK and Ireland, and Italy from 2019 – include broadband services) and seven markets, including Spain and Switzerland, feature a Sky OTT service, making Sky the third SVoD player in Europe with over 2 million paying subscribers. Sky’s pay TV customer relationships are highly prized, with average revenue per subscriber rates that represent some of the highest in Europe, estimated at £43 in the U.K., €49 in Italy and €40 in Germany for pay-TV.”

“Technology and service investments have always underpinned Sky’s strength and position as best in class in pay TV. In recent years it has invested into online video distribution through Roku, 1 Maintream, Molotov TV in France and iflix in South East Asia, as well as social and niche online platforms Pluto.TV, Whistle Sports, Ginx TV, fuboTV, TV4 Entertainment. Key investment in marketing and advertising included Diagonal View, InCrowd, DataXu and Sharethrough,” advised Hamza.


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