Sky Takeover Battle: Did Comcast Pay Too Much?

Comcast's £17.28 bid is great for Sky shareholders, Morningstar analysts say, but Comcast may have got carried away in the bidding war

Allan C. Nichols, CFA 24 September, 2018 | 12:11PM
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Sky HQ

Sky (SKY) shares soared on Monday as Comcast (CMCSA) successfully outbid Fox (FOXA) over the weekend with a £17.28 offer for the FTSE 100 broadcaster.

Comcast’s bid beat Fox’s £15.67 per share offer, and both bids were significantly higher than previous offers of £14.76 and £14 respectively. The offers are great for Sky shareholders, but Morningstar analysts believe Comcast will struggle to generate a decent return on its investment, as we already thought the previous offers exceeded Sky’s fair value. We are now increasing our fair value estimate for Sky to Comcast’s offer price of £17.28.

Comcast’s higher bid adds £4.4 billion to the purchase price versus its previous offer, taking its total bid to £30.6 billion. This additional payment is only 3.3% of Comcast’s market capitalisation. Further, if we assume Comcast overpaid by 40% for Sky’s equity, the shareholder value lost would equal about $2.50 per share. So, while we think Comcast got carried away in the bidding it won’t be too detrimental to our Comcast fair value estimate.

Sky shareholders now have until 11 October to vote for either offer. However, with Comcast’s offer more than 10% higher than Fox’s, we expect Comcast’s offer will win the day despite Fox already owning 39% of Sky’s shares.

Timeline in the Battle for Sky

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.

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.

In June, the then Culture Secretary Matt Hancock said that the UK Government is likely to approve 21st Century Fox’s bid for Sky. This was then confirmed by the new Culture Secretary, Jeremy Wright, on 12 July.

The Takeover Panel ran an auction on the weekend of 22-23 September.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Comcast Corp Class A44.16 USD0.07Rating
The Walt Disney Co109.32 USD3.51Rating

About Author

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