CMCSA Comcast Corporation

By Shalini Ramachandran, Amol Sharma and David Benoit 

Comcast Corp. lobbed an official $31 billion proposal to buy European pay-TV operator Sky PLC -- but it may have a much bigger deal in mind down the road.

Comcast's official bid to buy Sky tops an existing offer from 21st Century Fox, which already owns a 39% stake in Sky. Comcast said it was considering such an offer in February.

The official Comcast offer sent Sky shares more than 2% higher -- and above the Comcast bid, suggesting investors are positioning for a bidding war.

The formal bid kicks off what has been a long-expected corporate takeover battle pitting Comcast against Rupert Murdoch's 21st Fox over the European TV giant. Sky said in response to the offer Wednesday that it was terminating its previous pact agreeing to the 21st Century Fox takeover. It said its board would also withdraw its recommendation for the Fox bid. 21st Century Fox, meanwhile, said Wednesday it remained committed to buying all of Sky.

Separately, Comcast is weighing whether to play interloper on the pending Walt Disney Co. acquisition of 21st Century Fox's entertainment assets, people familiar with the situation say. Comcast is gaming out the possibility of making a public case to the company's shareholders that they should reject the Disney deal, which is expected to come to a vote this summer, and opt for a Comcast tie-up instead, people familiar with the situation say.

Comcast lost out to Disney in December when Fox rejected its bid, which was 16% higher, according to a Fox regulatory filing last week. Fox cited concerns about regulatory risk. The assets in play include Fox's film and TV studio, cable networks and international properties including Star India and the Sky stake.

Comcast may choose to leave the Disney-Fox deal alone, and it doesn't expect to make a decision in the near term, the people familiar with the situation said.

The company's pursuit of potentially transformative deals comes as the company posted strong first-quarter earnings growth, despite continuing cable TV subscriber losses.

Comcast reported 21% profit growth compared with the year-earlier period. Revenue at its NBCUniversal media unit rose 21% to $9.5 billion, boosted by its Winter Olympics and Super Bowl broadcasts, which offset a weak performance in the film division. Comcast lost 96,000 cable TV customers, compared with a gain of 42,000 in the prior-year quarter, as it continues to feel the impact of rising competition from streaming services. This was its fourth consecutive quarter of subscriber losses.

If Comcast chooses to go hostile for the Fox assets, Comcast would need to woo Fox investors, which may not be easy. Comcast has had conversations with several shareholders in the wake of its Sky bid, including British investor TCI Fund Management, known for its activism, people familiar with the situation said.

TCI has been building a significant stake in Fox, people close to the situation say. As of December, the firm held 0.7% of Fox's class A common shares. Including Class B shares, its voting power on a merger proposal would have been 0.46%. The size of its current stake isn't clear; the next disclosure would likely come in a May filing. As of December, TCI also was among the top holders of Comcast shares, with a 1.5% stake, according to FactSet.

In recent weeks, TCI founder Chris Hohn spoke on the phone with Comcast Chief Executive Brian Roberts and probed about Comcast's interest in launching a public bid for Fox's assets, people familiar with the situation said. Mr. Roberts didn't respond, the people said. Other TCI officials have also had conversations with Comcast's investor relations team that left Comcast executives with the clear indication that TCI wants the cable giant to continue its pursuit of Fox, the people said.

In an email, Mr. Hohn said he didn't urge Mr. Roberts to go hostile in pursuit of Fox's assets.

Mr. Hohn is one of the best-known activists in Europe and has historically not shied from being aggressive with big companies and significant shareholders. In 2016, Mr. Hohn took a stake in SABMiller PLC and got Anheuser-Busch InBev to up its offer for the brewer even when more than 40% was in the hands of two investors.

Rupert Murdoch and his family have a 39% voting interest in Fox. Their economic interest, which is what would count in a shareholder vote on the Disney-Fox merger, is roughly 17%. (The Murdoch family is also a major shareholder in Wall Street Journal-parent News Corp)

Besides lining up investor backing, there are other considerations for Comcast in whether to go to war over the Fox assets. One is its stock price, since its shares would likely be used to help pay for a major acquisition, the people familiar with the situation said. Comcast shares have declined 22% since late January, wiping out more than $40 billion in market value.

Comcast is also watching closely the government's antitrust case against AT&T and Time Warner, which is playing out in court. If AT&T wins, Comcast would feel more emboldened to make a move, the people said.

As it weighs big deals, Comcast is continuing to invest in areas to help its existing business offset the challenges of traditional TV. It has expanded its "X1" smart-video platform, raised internet speeds and launched a new wireless cellphone service.

Though broadband customer growth slowed in the first quarter to 379,000 additions from 429,000 in the prior-year quarter, revenue for the unit grew 8%.

Quarterly profit rose to $3.1 billion, or 66 cents a share, up from $2.6 billion, or 53 cents a share, a year ago. Adjusted profit per share for the latest quarter was 62 cents. Revenue grew 11% to $22.79 billion. Both figures exceeded estimates from analysts, who were projecting adjusted earnings of 59 cents a share on $22.74 billion in revenue, according to Thomson Reuters.

In its official offer for Sky, Comcast didn't change the terms of its informal offer, which it first disclosed in February. It said it is offering GBP12.50 ($17.46) a share for Sky, or 16% more than Fox's GBP10.75-a-share bid. That is the price Comcast said it would offer when it announced its intention to bid for Sky in February.

Fox, which owns 39% of Sky, originally proposed buying the 61% of the British pay-TV company it doesn't already own in December 2016, but British regulators have held up the takeover bid as it examines whether it would give Mr. Murdoch and his family too much influence in U.K. media.

Mr. Murdoch and his family are major shareholders in Fox and in News Corp, which publishes three major British newspapers, as well as The Wall Street Journal. Regulators are expected to deliver a final recommendation on Fox's proposal on May 1, and then the British government will decide whether to approve the merger outright, approve it with conditions, or reject it.

Sky and Disney have both offered the U.K. government assurances that both would protect the independence of Sky News. On Wednesday, Comcast offered similar assurances.

Comcast said in a statement that it would establish an independent board for Sky's news channel, and would commit to funding it for 10 years. Fox has also offered to create an independent board for the channel, which it would fund for 15 years.

--Ben Dummett contributed to this article.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com, Amol Sharma at amol.sharma@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

April 25, 2018 08:43 ET (12:43 GMT)

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