July 26, 2018 / 1:16 PM / 19 days ago

Sky expands against backdrop of takeover battle finale

LONDON (Reuters) - Sky (SKYB.L) posted double-digit earnings growth after it added another 500,000 customers in its latest financial year, showing why Comcast and Rupert Murdoch’s Fox are slugging it out to buy the European pay-TV leader.

FILE PHOTO: The Sky logo is seen at the company's UK headquarters in west London July 25, 2014. REUTERS/Toby Melville/File Photo

“It’s been an exceptional year of progress, delivering against our plans but also laying the groundwork for the future,” Chief Executive Jeremy Darroch told reporters.

“[We are] excited about the opportunities ahead no matter what our future ownership structure is, we’re certainly not slowing down.”

U.S. cable company Comcast (CMCSA.O) is leading the race to buy Sky after it offered 14.75 pounds a share this month, valuing the group at $34 billion. The bid came just hours after Fox (FOXA.O) had upped its own bid to 14 pounds.

Sky, which is already 39 percent owned by Fox, reported a 11 percent rise in core earnings for its established business to 2.5 billion pounds ($3.3 billion) for the year to June 30.

Revenue was up 5 percent to 13.59 billion pounds, beating a forecast by UBS, as the company said more than 23 million European households were subscribing to 63 million pay-TV, broadband and mobile services.

Darroch said Sky’s content in sport, drama and entertainment would be bolstered by new partnerships with Netflix, BT Sport, Mediaset Premium and Spotify.

Shares in Sky are trading at record levels, and above Comcast’s latest offer, as investors bet that Fox will return with a higher bid. They were up marginally at 1,511 pence at 1240 GMT.

Lee Wild, head of equity strategy at Interactive Investor, said Sky had shown just why Fox and Comcast were fighting tooth and nail for control of the satellite broadcaster.

“These numbers and a bullish plan for further aggressive growth in the current financial year are clearly presented to squeeze the maximum from potential buyers,” he said. “It could work.”

(For a graphic on 'Sky share price as percentage of competing cash offers' reut.rs/2JU0WRn)

ORIGINAL CONTENT

The fight for Sky had been played out in the shadow of a bigger battle in the United States between Comcast and Disney (DIS.N) to buy most of Fox’s assets, including its stake in Sky.

Comcast conceded that contest to Disney a week ago, in part because the bidding war was inflating the value of Sky, given Fox’s partial ownership, according to sources.

Fox - and by proxy Disney - has until August 9 to increase its bid for Sky, a move which could cause British regulators to trigger an auction procedure.

The takeover battle, which started in December 2016, has not knocked Darroch off course in his strategy for Sky, centred around content, such as its own production “Patrick Melrose”, partnerships with potential rivals and better technology.

Reports have said Comcast wants Darroch, in the top job since 2007, to stay if it buys Sky. The executive, however, said on Thursday it was too early to say whether he would remain after a sale.

Analysts expect profit growth to accelerate in the coming years, helped by a reduction in the price the broadcaster will pay for English Premier League soccer rights from 2019.

UBS said Sky had put in place the building blocks for future growth. “Financials for Sky are inflecting after a period of investment and growth should accelerate going forward,” it said.

Sky added 20,000 customers in Britain in its final quarter, which UBS said was below its forecast, but churn, a measure of the number of people leaving, fell to a decade low of 10.3 percent.

Reporting by Paul Sandle; Editing by Keith Weir

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