Disney Faces Lengthy Bidding War as Comcast Bids for Sky TV

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Credit: Charles Mostoller/Bloomberg

Your move, Bob Iger.

Comcast is challenging the CEO of Walt Disney Co. and his plans to take over 21st Century Fox's media businesses by swooping in and trying to snag one of the main assets. Comcast made a surprise 22.1 billion-pound ($31 billion) offer Tuesday for U.K. pay-TV company Sky Plc, which Iger has called a crown jewel of the package he's seeking to buy from Fox.

The sudden arrival of Comcast creates some difficult choices for Iger: Should he be content with Fox minus Sky, or should he entertain a costly bidding war with the U.S. cable company? Comcast's offer of 12.50 pounds per Sky share exceeds a 10.75-pound offer by Rupert Murdoch's Fox for the 61 percent stake it doesn't already own in the European broadcaster, which was announced before Disney unveiled its own takeover plans for Fox.

Shareholders feeling short-changed by Murdoch greeted Comcast by sending Sky shares soaring as much as 23 percent.

"This is tanks on their lawn," said Crispin Odey, Murdoch's former son-in-law and founder of hedge fund manager Odey Asset Management, which owns a 0.8 percent stake in Sky and has been pushing for a higher offer.

After months scoping out Sky's technology platform and content proposition of sports and entertainment across five countries, Comcast revealed its hand Tuesday morning. Its timing suggests that the owner of NBC Universal sees an opening to win over U.K. officials and investors. Fox has been struggling to secure regulatory approval for its bid and some Sky holders have been agitating for a better offer after Disney's $52.4 billion agreement in December to buy most of Fox's film and TV assets, including its stake in Sky. Fox would hand full control of Sky to Disney if its takeover is successful.

Sky shares rose to as high as 1,355 pence in London, topping both bids and the most since Fox's offer in December 2016. Disney shares declined as much as 3.2 percent on open in New York, while Comcast fell as much as 6.2 percent and Fox was down 2.2 percent.

Sky noted the approach by Comcast, which doesn't yet amount to a formal offer, and will make further announcements "when appropriate," it said in a statement.

Given the strategic importance of Sky to Fox and Disney, a counteroffer well above Comcast's is now very likely, said Jerry Dellis, an analyst at Jefferies in London. Iger called Sky a "crown jewel" among Fox assets in a December interview with Bloomberg TV.

"It's obviously a huge gauntlet that's been laid down to the Murdochs in relation to their pre-existing offer," said Alice Enders, head of research at Enders Analysis. Sky's success at the Premier League soccer rights auction this month made it more desirable, she said. "Sky is a very attractive business."

Sky declined to comment while representatives for Fox and Disney didn't immediately respond to requests for comment.

Deal structure

Comcast Chairman and Chief Executive Officer Brian Roberts said he's prepared for the Murdochs to spurn Comcast's advance. The proposal is structured so that Comcast will be successful as long as it brings more than 50 percent of Sky shareholders to its side.

"We'd prefer 100 percent but it's not a condition," Roberts said on a conference call. Comcast would settle with owning Sky alongside Fox or Disney as minority shareholders, he said. "We respect that maybe they don't want to sell, but that will be something discussed further down the line."

Driven by its interest in controlling Sky, Comcast had offered $60 billion for much of Fox in December before Fox chose Disney's lower offer, a person familiar with the matter said at the time. Comcast was considering making another bid for Fox assets this month, according to a person familiar.

Fox preferred to sell assets to Disney in part because it believed that deal would present fewer regulatory hurdles, people familiar with the matter have said. Comcast is the biggest U.S. cable-TV operator and also owns one of the largest film and television groups, NBCUniversal.

Sky 'jewel'

It's Sky's technology that first lured Comcast. On a trip to the U.K. in November with Dave Watson, head of Comcast Cable, Roberts suggested jumping in a taxi and going to a mall to get an in-store demo of Sky's products. They spent at least an hour at a Sky store going through every feature and comparing it to Comcast's own X1 platform, which lets subscribers search for movies and TV shows through a Netflix-like user interface and a voice-activated remote control, Roberts said on the call.

"We were really terribly impressed," Roberts said. "Seeing it again and listening to the passion of the sales, and looking at the product, and seeing the success in their earnings -- all those things combined to reinforce what a number of us have known for years, this is a jewel."

-- Bloomberg News

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