Comcast (NASDAQ:CMCSA), one of the big US cable TV companies has made a £22.1bn offer for Sky (LON:SKYB). Sky shares are popping on the news. This puts Comcast in direct competition with Twenty-First Century Fox (NASDAQ:FOX) who already have an offer in place. Sky is a prized asset for Murdoch so this could quickly escalate into a bidding war.
Comcast shares have gone up nearly eight-fold since the 2008 financial crisis but more recently shares have been under-performing the broader market. Over the past 52-weeks, Comcast shares have gained 5.5%, less than the 16.2% achieved by the S&P 500.
Comcast has some compelling motivations to do this deal. Back home, Comcast faces a developing trend of 'cord-cutting', customers ditching their cable TV subscriptions in favour of online streaming. Industry consolidation within the US looks difficult after Comcast’s failed takeover of Time Warner cable (NYSE:TWX). As the biggest media company in the US, Comcast will want to cut in on Disney’s growth ambitions after it acquisition of 21st Century Fox.
Sky is not without its own problems though. Sky shares recently got a boost by paying less for football TV rights but this could be a short-term phenomenon should the likes of Amazon (NASDAQ:AMZN) get involved in future bidding. It could be argued, Comcast is doubling-down on a dying format. But from Comcast’s perspective, Sky has a very desirable near-monopoly on satellite TV in the UK. Sky has proven quite adept at keeping with the times via its own NowTV streaming offer, something Comcast has yet to do in the States.
The £12.50 per shares is 16% above that offered by Fox. The bid reflects the fact that Sky shares already have mostly priced-in the 21st Century Fox deal. The recent ruling by the UK competition watchdog against 21st Century Fox’s offer on media plurality grounds, offers a nice segue for Comcast. The US firm has been savvy in its offer by promising to maintain Sky News, something that was less certain under ownership by Disney.
Comcast can use the general mistrust of Rupert Murdoch in the British Isles to sweep in and get a bargain. We suspect this offer, which is preferential for shareholders because of the higher price tag, has a much better chance of passing regulatory scrutiny than the Fox deal. A bidding war would make the outcome uncertain, but we think Comcast now looks like the most likely future-owner of Sky.
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