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Twenty-First Century Fox finally got clearance on Thursday from Britain’s culture secretary to pursue its takeover of Sky, after 18 months of trying. The decision came hours after Comcast seized the lead in the bidding for the European satellite broadcaster by offering £14.75 a share.
Yet it’s a different British regulator, the country’s Takeover Panel, which may have made Sky — and not Fox itself, which has drawn takeover bids from the Walt Disney Company and Comcast to expand their media empires — the center of the biggest media takeover battle today. But it could also lead to a peaceful compromise.
To understand how the British takeover rules are having an effect, let’s first set out some context:
■ Fox already owns a 39 percent stake in Sky.
■ In late 2016, Fox initially bid £10.75 a share for the 61 percent of Sky that it didn’t own. Comcast later bid £12.50.
■ On Wednesday morning, Fox raised its offer for Sky to £14 a share. By Wednesday evening, Comcast had countered with a bid of £14.75.
■ Both Disney and Comcast have sought to buy the bulk of Fox, which would include that 39 percent stake. Disney initially bid $52.4 billion; Comcast followed with a $65 billion offer; and Disney returned last month with a $71.3 billion proposal.
Now, here’s where Britain’s merger rules come in. A provision known as the “chain principle” essentially says all shareholders in a company must be treated equally. In this case, the concern is that Fox’s shares of Sky would be valued higher than those of other shareholders.
The chain principle first became a factor in April, when the Takeover Panel ruled that if Disney succeeded in buying control of Fox, it would need to buy out the rest of Sky at £10.75 a share — assuming that Comcast didn’t win.
Things got more complicated last month when Disney raised its bid for Fox to $71.3 billion, presumably raising the valuation of its stake in Sky as well. The Takeover Panel hasn’t yet decided whether the chain principle means that Disney would need to pay a higher price to buy out the rest of Sky.
The chain principle could affect Comcast as well. What the cable giant may be wary of is essentially bidding against itself: Any new bid that it makes for Fox might mean paying more for Sky as well, making the whole effort more expensive.
Both Disney and Comcast are keenly interested in Sky, which would give either a big international business that includes both original programming and content distribution. But each must now potentially make some tough choices.
Is it worth continuing to pursue Fox, knowing that it may end up entangled in Britain’s takeover rules? Or is it worth keeping up a bidding war for Sky, given how high the price has gotten?
At the moment, Comcast is considering ending its race with Disney for the bulk of Fox and focusing on Sky, people briefed on the matter have said.
For now, it looks like Sky shareholders may enjoy a bidding war, while Fox shareholders hoping for the same may be out of luck.
But this scenario isn’t out of the question: Comcast drops its takeover bid for Fox but continues to seek Sky — and Disney, happy to have averted a deal fight for Fox, lets that happen. It’s a neat way of ending one of the biggest and most heated media fights in memory.
