By Stu Woo and Shalini Ramachandran
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 24, 2018).
LONDON -- Having secured control of European pay-TV giant Sky
PLC, Comcast Corp. now must persuade investors that it didn't
overpay and that the deal will accelerate its growth.
The U.S. cable giant topped 21st Century Fox Inc. with a $38.8
billion bid in a rare auction held by British regulators over the
weekend, ending a monthslong takeover battle that was part of a
larger chess match among some of media's most powerful players.
Comcast's offer of GBP17.28 a share, or about $22.60 a share,
easily surpassed Fox's highest bid of GBP15.67 after three rounds
of bidding Saturday. The final round was blind, so neither side
knew the other's offer until the results were announced.
Comcast executives say a combination with Sky -- which itself is
a giant in both content and distribution -- will boost its user
base to 53 million and add more heft to invest in technology,
programming and valuable sports-media rights. The merger will help
Comcast diversify its revenue base beyond the U.S., where cable
cord-cutting is taking a toll on the traditional TV business.
In a statement late Saturday, Comcast Chief Executive Brian
Roberts said the acquisition "will allow us to quickly, efficiently
and meaningfully increase our customer base and expand
internationally."
Still, Wall Street had shown some jitters about Comcast's
pursuit of Sky, even before the weekend auction. Veteran cable
analyst Craig Moffett of MoffettNathanson research said Sunday the
price the company is paying is a substantial premium over the
market's valuation of Sky before it went into play two years ago.
"They're going to have a very hard time convincing shareholders
that this is a good use of their capital," he said.
Comcast's winning bid was up sharply from its GBP12.50 bid in
February and Fox's initial GBP10.75 bid in December 2016.
Jonathan Chaplin, an analyst at New Street Research, said the
stock could face pressure from investors frustrated at the price,
but he will be recommending clients buy it on a dip, because he
believes Comcast's fundamentals, especially in its growing
broadband business, are strong. "I am not delighted by the price
but I am delighted that this is behind us. Now the market will
start refocusing on the business, and the business is doing really
well," he said in an email.
Comcast's Mr. Roberts tightly oversaw the bidding, alongside a
select group of executives, including his chief financial officer,
top deal executives and outside advisers in a London war room,
according to people familiar with the matter. Comcast felt it
needed to win by a substantial margin to avoid difficulty winning
over any significant shareholders and ensure it can close the deal
smoothly, one of the people said.
Comcast finance chief Michael Cavanagh, over a period of months,
strategized with his deal team about how best to beat the other
side.
The jostling over Sky was part of a broader scramble by media
companies to fortify themselves against a rising threat from
Silicon Valley giants such as Netflix Inc.
This summer, Comcast lost a bidding war to Walt Disney Co. for
Fox's entertainment assets. Disney agreed to pay $71 billion for
Fox's famed Hollywood studio and international assets, including a
39% stake in Sky that Fox had long held. That bigger deal is
expected to close in coming months.
If Fox had won the weekend's auction for Sky, Disney would
ultimately have taken 100% control of the pay-TV company. Instead,
attention will now turn to whether Disney will sell the 39% stake
in Sky -- its value has increased by the bidding competition -- or
remain a minority partner for Comcast.
Fox, in a statement, said it was considering its options
regarding its 39% stake in Sky.
Analysts have raised the idea that Comcast could trade its 30%
stake in Hulu to Disney -- giving Disney overwhelming control of
the streaming-video service -- in return for the rest of Sky.
Comcast has said it values its position in Hulu and just named some
NBCUniversal executives to Hulu's board.
Mr. Roberts of Comcast has said he would be prepared to jointly
own Sky with a rival. Rupert Murdoch and his family are major
shareholders in Fox and Wall Street Journal parent News Corp.
To seal control of Sky, Comcast needs more than 50% of Sky's
shareholders to support the offer. That seems likely given the wide
gap between the bids. But it could still prove challenging if
Disney and Fox decide against tendering to the offer.
Sky sells phone, TV and internet services to 23 million European
customers and produces its own news, entertainment and sports
programming.
Comcast executives have said acquiring the company will further
its ability to counter Netflix, potentially with an international
streaming service. Sky already operates a streaming service called
NOW TV in several European countries and has been investing in
premium original shows in response to Netflix's spending.
The merger could also yield benefits in news and entertainment
programming. Sky News and NBC News could share resources, and
larger scale could help the company bargain for the best content
deals.
That is especially true in sports, where deep-pocketed tech
companies such as Amazon.com Inc. and Alphabet Inc.'s Google are
throwing their hats in the ring. NBC has rights to the Olympics,
NFL games, Nascar and the Premier League, while Sky carries matches
from marquee European soccer leagues.
Comcast investors worry that the company is buying a satellite
broadcaster at a time when U.S. satellite companies such as DirecTV
and Dish Network Corp. have hemorrhaged customers under competitive
pressure. Investors have also worried that Comcast's pursuit of Sky
and its failed bid for the Fox entertainment assets showed that
management wasn't confident in Comcast's core business.
Comcast shares slid considerably after it announced its initial
Sky bid in February, but rallied more recently and are 4.5% below
their February price. The company is using debt to finance its
all-cash offer.
Mr. Roberts has sought to allay Wall Street's concerns, noting
that Sky isn't simply a satellite-TV business -- it also has a
broadband offering, a content studio and has invested significantly
in video technology. In June, Sky posted strong results, including
customer additions up 39% in the quarter. He has also said Comcast
is confident in the strength of its core U.S. cable business.
"Right now, I feel we're in a strategically great place, and any
deals we're doing we're trying to play offense in a belief that we
over the long term can create exceptional shareholder value," Mr.
Roberts said at a recent Goldman Sachs investor conference.
Corrections & Amplifications Comcast used outside advisers
for the Sky auction, but didn't use a game theory consultant. An
earlier version of this article incorrectly said Comcast used a
game theory consultant. (Sept. 22, 2018)
Write to Stu Woo at Stu.Woo@wsj.com and Shalini Ramachandran at
shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
September 24, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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