June 14, 2018 / 1:45 PM / 8 days ago

Breakingviews - Fox M&A battle could favour Sky investors

LONDON (Reuters Breakingviews) - Gaming out a looming M&A fight between Walt Disney and Comcast is a job for John Nash, the game theorist awarded a Nobel Prize for his study of conflict and cooperation. Short of an unlikely truce between the two groups competing for Rupert Murdoch’s Twenty-First Century Fox, however, shareholders in British broadcaster Sky should benefit.

The Sky logo is seen on outside of an entrance to offices and studios in west London, Britain June 29, 2017. REUTERS/Toby Melville

Cable giant Comcast on Wednesday offered $65 billion in cash for Fox’s entertainment and international assets, topping a $52.4 billion all-stock agreed deal with Walt Disney. Both offers include Fox’s 39 percent stake in Sky, which itself is the subject of offers from both Fox and Comcast. Shares in the UK company are currently trading at 13.41 pounds – above Comcast’s superior 12.50 pounds per share bid. In other words, Sky shareholders are expecting a higher offer.

There are multiple ways that could happen. If Comcast quickly snags Fox, Disney might decide to pursue Sky rather than walk away empty-handed. Boss Bob Iger has already described the UK company as a “real crown jewel”. Rampant M&A, such as AT&T’s recently approved bid for Time Warner, has left media companies scrambling for assets to challenge digital giants Amazon and Netflix.

If, on the other hand, Disney prevails in the hunt for Fox, Iger and Murdoch are almost certain to challenge Comcast for the remaining 61 percent of Sky. Either way, a bidding war may break out.

Those scenarios depend on the battle over Murdoch’s U.S. group being decided before the two parties get around to fighting over Sky. Fox may not get final approval from UK regulators for its Sky bid until early July. The U.S. company’s shareholders, meanwhile, are set to vote on the Disney agreement as early as July 10. But even if a lengthy antitrust process prolongs the U.S. battle, Fox has good reasons to prevent Comcast from taking control of Sky in the meantime.

The risk for Sky shareholders is that Comcast and Disney agree to share Fox’s spoils, with one taking the U.S. assets and the other walking off with the UK company. That’d arguably make more sense than risking overpaying in separate bidding wars. But in a high-stakes M&A game with scarce assets, it doesn’t take John Nash to recognise that financial rigour may be displaced by fear of missing out.

Breakingviews

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