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Comcast, Fox Set to Decide Sky's Fate in Three-Round Auction

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Comcast (CMCSA - Free Report) and 21st Century Fox (FOXA - Free Report) will now participate in a three-round auction, run by the British regulators, to settle the ownership of European Pay-TV giant, Sky Plc. Notably, Fox already owns a 39% stake in Sky.

The fight for the remaining 61% stake has seen much drama over the last 21 months. In December, 2016, Fox offered to buy the stake for $13.41 (£10.75) per share, valuing Sky at almost $23 billion. However, completion of the deal got delayed due to regulatory hurdles.

In a surprising move, Comcast submitted a counter-bid of £12.50 per share in February, this year. In July, Fox sweetened its bid to $32.5 billion or £24.5 billion (£14 per share) that was more than 30% of its first bid.

However, this was immediately retaliated by Comcast’s new offer of $34 billion or £26 billion (£14.75 per share), 18% more than its original offer.

Why Sky is So Valuable?

The bidding war between the two U.S. media giants has positively impacted Sky’s shares, which are currently worth almost $36 billion, per The Wall Street Journal.
 

Sky’s robust portfolio and expanding customer base are the primary attraction for both Comcast and Fox, as they fight the growing dominance of streaming service providers like Netflix (NFLX - Free Report)    and Amazon Prime.

Sky operates in the United Kingdom, Austria, Germany, Ireland and Italy, and reaches almost 23 million customers. Its popularity is primarily driven by offerings like the English Premier League (EPL) and Game of Thrones as well as original content. Moreover, the company has rights to show 128 EPL soccer matches for three seasons, from 2019 to 2020.

The acquisition of Sky will definitely boost Fox’s content portfolio, while it will help Comcast to expand in the Western Europe. This will diversify the cable-giant’s revenue stream as the North-American Pay-TV market saturates.

Moreover, Comcast will be able to leverage Sky’s over-the-top (OTT) offerings. The company holds stake in emerging market OTT player, iflix, and platform and device provider, Roku.

Who Has a Better Chance to Win the Auction?

The maximum three-round auction is set to start on Friday evening and run through Saturday. Notably, the bids must be in cash.

Fox, being the lowest bidder, will get the first chance to make a higher bid for Sky’s stake. In the second round, Comcast will get the chance to raise its bid.

However, if the parties in the bidding process fail to clinch the deal by the second round, the auction will go into the third round. In that case, both Fox and Comcast will be required to submit sealed bids to the regulator.

Fox now has a strong coffer due to Disney’s (DIS - Free Report) backing. Reportedly, the media giant has assured to back any additional debt that Fox takes on to buy Sky. Notably, Disney is in the process to acquire Fox’s assets, including the 39% Sky stake, and has already received antitrust approval from the U.S. Department of Justice (DOJ).

On the other hand, Comcast’s decision to back-off from acquiring Fox has improved its purchasing power. The company had planned to raise significant amount of debt (reportedly $85 billion) for the Fox transaction, which would have increased its total debt to almost $170 billion. Notably, Comcast has already secured $32 billion in bridge financing for Sky.

Comcast and 21st Century Fox have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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