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Comcast CMCSA and 21st Century Fox’s FOXA battle for 61% stake of the European Pay-TV, Sky, escalated following higher bid from both the companies.
Fox’s sweetened bid of $32.5 billion or £24.5 billion (£14 per share) was immediately retaliated by Comcast’s new higher offer of $34 billion or £26 billion (£14.75 per share) on Jul 11. The company’s latest bid is 18% more than its original offer.
Fox’s offer is more than 30% above its first bid, submitted in December 2016, and now represents an 82% premium to Sky’s trading price at that time. Fox already holds 39% stake at Sky.
Notably, the bidding war between the two U.S. media giants has positively impacted Sky’s shares, which are currently worth almost $35 billion or £26.6 billion, per Reuters.
Why is Sky Important for Comcast and Fox?
Sky holds significant value for both Comcast and Fox as they fight the growing dominance of streaming service providers like Netflix NFLX and Amazon Prime.
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Sky operates in the United Kingdom, Austria, Germany, Ireland and Italy, and reaches almost 22.5 million customers. Its popularity is primarily driven by offerings like the English Premier League (EPL) and Game of Thrones.
Notably, Sky has the rights to show 128 EPL soccer matches for three seasons, beginning from 2019 to 2020.
The acquisition of Sky will definitely boost Fox’s content portfolio. Fox, itself is in the mid of a bidding war between Disney DIS and Comcast, and the addition of Sky will further boost its valuation.
Meanwhile, Comcast’s interest in Sky is primarily driven by the fact that the acquisition will help it expand in the Western Europe. This diversifies its top-line source as North-American Pay-TV market saturates. The company’s Xfinity video revenues as well as NBCUniversal contributes significantly to earnings.
Moreover, Comcast will be able to leverage Sky’s over-the-top (OTT) offerings. The company holds stake in emerging market OTT player iflix as well as platform and device provider Roku.
Will Bid Price Rise Further?
As noted by Reuters, the British regulators have indicated that “if Disney succeeds in buying Fox, including the 39% stake in Sky, it would be required to offer the same price for the remainder of Sky.” Hence, the bid price for Sky is expected to rise further.
Reportedly, Fox has an edge over Comcast as it has agreed to sell Sky's news channel to Disney, as per the requirement of the British government. Moreover, Disney’s assurance that it will back any additional debt that Fox takes on to buy Sky will encourage the latter to counter the latest bid from Comcast.
Nevertheless, Comcast is now expected to try harder for Sky’s assets, as a probable deal will help it gate-crash the ongoing Disney-Fox asset deal. Notably, Disney has secured conditional U.S. approval for Fox’s assets, which currently gives it an edge over Comcast.
Currently, Comcast has a Zacks Rank #3 (Hold), while 21st Century Fox carries a Zacks Rank #4 (Sell).
Disney has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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