Murdoch gears up to fight for Sky

Investors betting that Rupert Murdoch’s Twenty-First Century Fox Inc. is ready to raise its 11.7 billion-pound ($16.4 billion) offer for Sky Plc have had their convictions reinforced.
The media tycoon’s US television group has devised a cunning remedy to assuage British trustbusters’ concerns about the deal. It’s also sounding increasingly exasperated with the process. These are signs that Fox is ready to fight rival suitor Comcast Corp. to secure 100 percent of Sky.
Fox on Tuesday revealed that US media giant Walt Disney Co. could buy Sky News if Fox acquired Sky. Selling the channel to Disney could be an effective way of dealing with the UK Competition and Markets Authority’s concern that buying out Sky would give Murdoch an excessive share of the British media industry.
The CMA, and the UK government, would need to be assured that Disney is a committed long-term owner. But the plan still looks like a cleaner remedy than Fox’s alternative proposal to make Sky News a separate legal entity with its own governance, in which it promises not to interfere.
To recap: Disney bid for Fox last year, after Fox made its own offer to buy the 61 percent of Sky it doesn’t already own. That has triggered speculation that Disney also might bid for Sky directly, rather than bank on inheriting it through any acquisition of Fox.
But it makes sense for Disney to assist Fox’s existing offer for Sky. The bid is at a reasonably advanced stage, whereas a Disney offer for all of Sky would mean making fresh start.
The CMA is due to send its final report to the government. If it gives the go-ahead following these new remedies, Fox will have only shareholders and Comcast to get around.
Fox’s offer of 10.75 pounds a share — accepted by Sky’s board — should be seen merely as the price the company was willing to pay in December 2016 with at least a year of regulatory and economic uncertainty ahead.
The price it should pay in 2018 — with regulatory clearance more assured — ought to be much higher. Sky’s shares were trading at 13.14 pounds on Tuesday, above the 12.50 pounds a share Comcast has dangled in front of investors.
Right now, Fox sounds like it wants Sky more than Comcast. Its offer is the only one out there that’s firm. But its frazzled tone — grousing in Tuesday’s announcement that the takeover system is meant to be “objective, evidenced-based and grounded on the application of established legal principles” — might not be the best way to win over the CMA.
Comcast may want to wait and see if Fox is still blocked before making a formal offer. But it will soon have to show whether it is really serious, and whether Fox faces the prospect of paying a lot more.

—Bloomberg

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper