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Broadcast Battle Heats Up With Comcast's $31M Sky Buyout Bid

Ritujay Ghosh
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The broadcast war is not only intensifying but also becoming increasingly complicated. Making the scenario more complex, Comcast Corporation CMCSA, on Wednesday, made a $31-billion offer to take over Sky plc SKYAY, which raises the specter for a potential bidding war between Twenty-First Century Fox, Inc. FOXA and the cable television giant. Fox had earlier offered $16.5 billion to take over the remaining assets of Sky.

Understandably, every broadcaster is trying to increase its international presence with acquisitions, to stay ahead in the race. In fact, The Walt Disney Company DIS in Dec 2017 cut a $52.4-billion deal to acquire Fox’s television and film studios, FX Networks, National Geographic and other cable assets.

It goes without saying that broadcasters are trying to make their international presence stronger given the stiff competition they are facing from streaming giants like Amazon.com, Inc. AMZN and Netflix, Inc. NFLX, which are fast invading their space and changing the entire ballgame. As the bidding war starts, it now needs to be seen, which players finally gets bigger share of the pie.

Comcast Gears Up for Global Presence

Comcast has graduated from a cable television giant to a diversified media company. Its recent $31-billion bid to take over Sky proves that the company now plans to expand and make its international presence felt. In fact, in late February, Comcast had expressed its desire to take over the assets of Sky, which Fox is eyeing as well. Interestingly, Fox holds a 39% stake in Sky and had made a $16.5-billion offer to buy the remaining stake in the company in 2016.

Understandably, this will only result in a potential bidding war between the two companies. Sky is a lucrative property given its 23-million strong subscriber foothold in Europe. And taking over such a prized company will only add to Comcast’s broadcasting, comprising NBCUniversal, which has an eclectic mix of news, entertainment and sports content.

Moreover, Sky, which holds the rights of British Premiere League in the U.K., extended the U.S. television rights to NBCSports through 2022 in February. Naturally, a deal with Sky will help Comcast get broader access to the international market. Sky plc has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Taking over Sky makes sense to Comcast at a time when its rivals are scaling up. Charter Communication, Inc. CHTR is aggressively working on mobile expansion, while AT&T Inc. T is also planning to buy out Time Warner Inc. TWX to enhance its pay TV and digital content. Given this scenario, taking over Sky will only strengthen Comcast’s broadcasting arm.

Broadcasting Conundrum

Comcast’s formal bid to take over Sky has definitely made the entire broadcasting war more complex, as almost all the industry giants are trying to expand. Walt Disney in Dec 2017 entered into a deal to acquire Fox television and film studios, FX Networks, National Geographic and other cable assets. Understandably, this deal was a move to increase the company’s global presence in broadcasting. However, a few lucrative assets such as Fox News and Fox Broadcasting were left out.

Fox, on the other hand, had placed an offer to buy out the remaining 61% stake in Sky. In fact, Sky’s independent directors had recommended that the company’s shareholders accept Fox’s offer. However, with Comcast making a bid, Sky’s directors have withdrawn their recommendation.

Undoubtedly, Comcast has now put both Disney and Fox in a complicated situation, first and foremost because it automatically increases the stake for Disney’s bid for Fox. Moreover, if Fox doesn’t get into the bidding war, Disney might bid for Sky separately, as it had previously indicated. This is more so because Disney’s CEO Bob Iger had long expressed his desire to buy Sky calling it “the crown jewel.”

On the other hand, for Fox, acquiring Sky is more an emotional decision, given that Rupert Murdoch had founded the satellite broadcaster in 1990 and already holds a 39% stake.

The Real Competition

The biggest story amid all these bids and counter bids is the growing competition from streaming giants. Broadcasters have realized that tech companies with their digital content are giving them a run for their money and the only way to stay in the race is by expanding and diversifying their content.

In fact, Netflix has already said that it will spend $8 billion in 2018 just only on content. Comcast’s recent decision to add Netflix to its bundled offering is further proves the growing demand and preference for online content. Although it too early to predict a winner, it makes sense for broadcasting giants to diversify their portfolio to survive the onslaught of streaming giants.

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Time Warner Inc. (TWX) : Free Stock Analysis Report
The Walt Disney Company (DIS) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
AT&T Inc. (T) : Free Stock Analysis Report
British Sky Broadcasting Group PLC (SKYAY) : Free Stock Analysis Report
Comcast Corporation (CMCSA) : Free Stock Analysis Report
Charter Communications, Inc. (CHTR) : Free Stock Analysis Report
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
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