Government Gives Green Light to Sky Bids

Morningstar equity analysts believe that 21st Century Fox could now make a higher offer for the FTSE 100 broadcaster, potentially triggering a bidding war

Allan C. Nichols 5 June, 2018 | 6:48PM
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The UK Culture Secretary Matt Hancock has today cleared the way for 21st Century Fox (FOX) and Comcast (CMCSA) to bid for FTSE 100 broadcaster Sky (SKY). He said that 21st Century Fox selling Sky News to Disney (DIS) would "be the most proportionate and effective remedy for the public interest concerns that have been identified”.

With this announcement Morningstar equity analysts expect Fox to raise its offer to at least close to Comcast’s offer of £12.50. The current Fox offer is for £10.75, below the current share price around £13.50.

There is the potential for a bidding war to ensue for Sky. However, we believe it will be difficult for either firm to generate a good return on investment if they pay much more than £12.50. For now, we are maintaining our £12.40 fair value estimate for Sky’s UK listed shares but would increase it if a bidding war breaks out.

UK Regulators Scrutinise the Deal

In December 2016, Fox announced it had made an offer to buy the rest of Sky it did not already own and in April 2017 the deal was approved by the European Commission.

The bid for Sky has been subject to UK regulatory scrutiny since March 2017 when the Government issued an "Intervention Notice" to look at the public interest concerns associated with the broadcaster being sold off to Murdoch-controlled 21st Century Fox, which already owns 39% of Sky.

The notice triggered investigations by media regulator Ofcom and UK competition regulator the CMA.

In December 2017, Walt Disney Company announced that it intended to buy 21st Century Fox.

In late January this year, the CMA found provisionally that the Fox takeover would not be in the public interest.

At the end of February 2018 Comcast made a bid of £12.50 for Sky, which had already accepted the Fox offer, subject to regulatory approval.

At the end of April 2018, Comcast formalised its offer for Sky, whose board removed the recommendation that shareholders accept Fox's earlier bid.

UK Government Makes Its Decision

The CMA's report has been in the Secretary of State's hands since May 1.

At the end of May the Culture Secretary told the House of Commons that he was unlikely to block a potential takeover of the broadcaster.

Hancock said today: "The report confirms, as previously set out, that the proposed merger does pass the threshold for a relevant merger situation, and provides recommendations on both public interest tests."

"I gave interested parties time to make representations and I received no further representations. As a result, I have concluded that the proposed merger does not raise public interest concerns and so I can confirm today that I will not be issuing an intervention notice," Hancock told Parliament.

The condition that Sky News is sold off addressed two concerns of the CMA. "First, the potential erosion of Sky News’ editorial independence which could in turn lead to a reduction in the diversity of viewpoints available to and consumed by the public," Hancock said.

"And second, the possibility of an increased influence of the Murdoch Family Trust over public opinion and the UK’s political agenda."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Comcast Corp Class A37.94 USD-1.56Rating
Skyline Champion Corp69.29 USD-1.86
The Walt Disney Co100.88 USD-1.52Rating

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Allan C. Nichols  Allan C. Nichols

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