LONDON (July 12): Sky shares leapt to an 18-year high on Thursday as investors bet a transatlantic battle for the European pay-TV group had further to run, after Comcast's US$34 billion bid trumped an offer from Rupert Murdoch made just hours earlier.
Comcast, the world's biggest entertainment group, said on Wednesday it had the backing of Sky's independent directors for a 14.75 pounds-per-share offer that came just 16 hours after Murdoch's 21st Century Fox bid 14 pounds.
The speed with which Comcast's Brian Roberts counterbid shows how determined he is to buy Britain's Sky, a broadcaster of sports, films and TV shows to 23 million homes across Europe.
Sky's shares rose to as high as 15.41 pounds on Thursday and were trading at 15.37 pounds in late afternoon, valuing it at 26.4 billion pounds — or US$35 billion — as investors bet the bidders would have to pay more to secure victory.
"You need a finale at the end of a great bull market and I think Sky is going to be that finale," said Crispin Odey, a top 20 Sky shareholder, noting the share's rapid ascent.
"It's got legs," he added.
Sky's shares are up 95% since Fox made its first bid in 2016, and have risen 55% in the last year.
The fight is part of a bigger battle being waged in the entertainment industry as the growth of Netflix and Amazon force the world's traditional media giants to spend tens of billions of dollars to keep pace.
Comcast and Walt Disney are locked in a separate US$70 billion-plus battle to buy most of Fox's assets, including Sky, and Disney is backing Murdoch in his pursuit of the UK firm.
Murdoch owns 39% of Sky, which he helped to launch.
The standoff pits the industry's biggest names against each other, with Roberts, the Murdoch family and Disney's Bob Iger engaged in a multibillion-dollar game of chess to reshape the global entertainment business.
The three are at a tech conference in Sun Valley, Idaho. They have history, after Roberts' Comcast tried and failed to buy Iger's Disney in 2004.
WINNER TAKES ALL?
Analysts are divided as to who will emerge triumphant.
Jeff Wlodarczak at Pivotal Research Group said Comcast may succeed in winning Sky but lose out on Fox to Disney.
Richard Greenfield at BTIG said, however, he thought Disney needed to buy Sky to secure a direct relationship with customers in Europe so it could sell them its vast range of programming.
"Is Disney willing to let Sky go? Or will they crush Comcast on both continents?" Greenfield said in a note.
"We continue to believe that if Comcast really wants to own Sky, their best way to do it is by acquiring the Fox assets — winner takes-all was always the scenario that appeared most likely to us."
Fox investors vote on Disney's US$71 billion bid on July 27.
Comcast, which made a US$65 billion all-cash offer for the Fox assets last month only for Disney to raise its bid, would need to return before that date if it wants to try again.
That means the next instalment of this drama is likely to move to the United States.
"It's not clear to me that Disney would allow Comcast to get Sky at 14.75 pounds in order to definitively get hold of Fox when they are really in the driving seat," a London-based hedge fund manager with shares in Fox and Sky told Reuters.
A second fund manager invested in Sky questioned whether Comcast was seeking to force Fox and Disney to do a side deal and sell it some Fox assets in order to end the bidding war.
"For Comcast bidding for the whole of Fox it's now too expensive, so they're focusing their bidding efforts on Sky," the fund manager said on the condition of anonymity.
"And because Murdoch and Disney are determined to take control of Sky, they will have to reach an agreement with Comcast in relation to other Fox assets."
MORE TO COME
Analysts at Jefferies said they thought Comcast, if required, could yet offer more. Comcast said the offer values Sky on a price to earnings multiple of 22.9 times 2017 earnings.
Jefferies see this multiple falling rapidly as Sky's earnings improve, helped by lower Premier League soccer costs from 2019. When factoring in synergies, it says the offer equates to around 12.57 pounds to Comcast, implying a multiple of 15.3 times Sky's forecast 2020 earnings, and falling thereafter.
Jonathan Chaplin, an analyst with New Street Research, said he believed Comcast could bid up to 16.00 pounds per share for Sky, and assumes Comcast will go this high if pushed.
"Of all the assets in the Fox portfolio, they probably view Sky as the most strategically important," Chaplin wrote.
In Britain, a 60-day timetable is set in motion once the second of the two bidders has published its offer document. If there are still two live competing bids by day 46 of the timetable, the Panel can run an auction process.
For now, investors are waiting to see what Murdoch will do next. Fox released a terse statement late on Wednesday saying it noted Comcast's offer. It received UK regulatory approval to buy Sky on Thursday — almost 20 months after it requested it.
The government had repeatedly delayed its approval for fears that Murdoch, the owner of two of the biggest selling newspapers in Britain, would control too much of the media.
Murdoch helped to launch Sky in 1989, building it up to be Britain's dominant pay-TV provider through its ownership of Premier League soccer, US drama and films. It now offers satellite TV in Ireland, Austria, Italy and Germany, and streaming services in Spain.
His son James is CEO of Fox and chairman of Sky.
"There is the question of whether Disney and Comcast are paying over the odds for Sky," said senior analyst Laith Khalaf at Hargreaves Lansdown.
"However, Sky investors won't worry too much about that."
(US$1 = 0.7571 pounds)