Fox Bid for Sky Blocked: Analysts View

The UK Competition and Markets Authority has blocked 21st Century Fox’s bid to acquire the remaining 61% of Sky

Allan C. Nichols, CFA 24 January, 2018 | 3:11AM
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Rupert Murdoch, head of Fox, News Corp and Sky

The UK Competition and Markets Authority has provisionally found that 21st Century Fox’s offer to acquire the 61% of Sky (SKY) it doesn’t already own, is not in the public interest. The CMA believes the Murdoch Family Trust, which controls Sky and several newspapers in the United Kingdom, has too much power and will increase it with full control of Sky.

The CMA says almost one third of the UK’s population receives its news from Murdoch-controlled entities. We disagree that the Murdoch family’s influence would be any greater with 100% ownership of Sky versus its current 39% stake.

The CMA didn’t reject the merger outright; this is ultimately the decision of the Secretary of State for Digital, Culture, Media and Sport, a position that has changed hands since the deal was sent to the CMA for review in September.

The CMA outlined three choices: prohibition of the deal, structural remedies such as spinning off or selling Sky News, or behavioural remedies that would insulate Sky News' editorial and news coverage decisions from the Murdoch family's influence. The CMA acknowledged that all this could change if Disney successfully acquires Fox.

While various proposals have been suggested in the past, including shutting down Sky News or having an independent editorial board, we believe the most likely scenario at this point is for the decision to be postponed until Disney’s deal with Fox is completed or rejected. With the January 23 announcement, the CMA’s final recommendation to the secretary has been pushed to May 1 from March 6 and could be delayed yet again by the CMA or the secretary.

Disney (DIS) may be content to leave Sky as a 39% subsidiary, or it could more easily acquire Sky as the Murdoch influence will be dramatically reduced. This roadblock has no effect on our fair value estimate or narrow moat rating for Sky, as they are based on the company's value as an independent entity. We are also maintaining our wide moat rating and $43 fair value estimate for Fox.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
The Walt Disney Co91.22 USD-3.09Rating

About Author

Allan C. Nichols, CFA  is a senior stock analyst and international investing specialist with Morningstar.

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