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Clash of the (media) titans: What drove the Fox, Comcast, Disney bidding war over Sky?

What started out as a seemingly mundane takeover of the British broadcaster escalated into a massive bidding war between three media giants, but how did it get to that point?
Disney, Fox and Comast logos
Comcast has come out on top in the contest over the broadcaster

The bidding war over broadcaster Sky PLC (LON:SKY) is finally over.

On Saturday, US media giant Comcast Corp (NASDAQ:CMCSA) managed to outbid Rupert Murdoch's 21st Century Fox Inc (NASDAQ:FOX) in an auction process instigated last Friday by the UK's takeover panel with a knockout bid of 1,728p per share, valuing the company at £30bn and massively trumping Fox's own bid of 1,567p per share.

READ: Sky set to be acquired by Comcast for £30.6bn after Fox trumped in sealed-bid auction

Comcast's victory marks the end of what has been a confusing and ever-shifting sequence of events between three media titans, Fox, Comcast, and fellow media conglomerate The Walt Disney Company (NYSE:DIS) over what was initially considered to be a relatively mundane takeover of Sky.

Which begs the question, what exactly was going on, and why?

What happened?

Fox initially attempted to purchase the remaining 61% of Sky that it does not currently own and made a £19bn offer for the remaining two-ish thirds of the broadcaster.

On 27 February, Comcast made a surprise bid for Sky at £22.1bn, 16% higher than the £19bn offer from Fox.

Sky shares jumped 20% on the day while the company withdrew its recommendation of Fox’s takeover bid.

The UK’s regulators did not seem too bothered about Comcast’s presence, with the then culture secretary Matt Hancock approving both takeover bids in June, although with the caveat that Fox must sell off Sky News amid concerns of Murdoch’s influence in the UK media.

READ: UK government approves Fox's takeover of Sky as long as it agrees to sell off Sky News

However, Fox returned fire in July with an increased offer for the Sky shares at 1,400p, or £24.5bn, much higher than its initial bid and overtaking Comcast's offer of 1,250p, or £22bn.

This was reversed shortly afterwards as Comcast replied with its own revised bid of 1,475p per share, taking the highest bid total for Sky to £25.9bn.  

Despite the focus on Sky, the tussle was part of a wider bidding war that included a plethora of Fox's media assets over which Comcast was battling Disney.

Following an initial US$52.4bn bid for the Fox assets by Disney, which includes its movie and TV production arms (as well as the 39% of Sky owned by Fox), Comcast swooped in with its own US$65bn offer.

Disney then retaliated by upping its bid for Fox's assets to around US$71.3bn, with Fox's shareholders able to receive the consideration in cash or stock as opposed to Disney's previous all-stock offer.

READ: Comcast drops 21st Century Fox bid to refocus on the pursuit of UK pay-TV firm Sky

The move proved a step too far for Comcast, who on July 19 dropped its bid for the Fox assets, saying it would instead "focus on [its] recommended offer for Sky".

With the Fox asset battle more or less concluded, the Sky bidding war entered its endgame on 20 September, when the UK takeover panel decided that both Comcast and Fox would enter a three-round auction phase for the broadcaster that would run from 5pm on Friday 21 September until Saturday evening.

Comcast eventually emerged victorious from the auction with a bid of 1,728p per share, vastly outpacing Fox's own bid of 1,567p and effectively ending Murdoch's control of Sky and any chance of Disney taking control of the broadcaster through its purchase of Fox's assets.

What drove the bidding war?

One of the main reasons for the fight over Fox and Sky was the continued rise of streaming services as a replacement for cable-TV subscriptions.

Streaming giants such as Netflix (NASDAQ:NFLX), armed with huge programming budgets, are causing consumers to abandon cable-TV subscriptions at an increasing rate, which is cutting into media company profits.

Whoever gained control of Fox’s assets would have access to a bundle of iconic franchises including ‘The Simpsons’ and ‘X-Men’ (particularly interesting for Disney’s Marvel arm) among others, which would make their streaming offerings much more alluring.

Disney has already pulled most of its content for its own streaming service, intending to use its vast library of hits, which now include the Marvel Cinematic Universe and Star Wars (and Pixar!), to compete in the new media market.

With Comcast now out of the picture, the purchase of Fox’s assets will give Disney control over one of Netflix’s few real competitors, Hulu, as each of the three companies currently owns a 30% stake in the streamer.

Regarding Sky, its right to the broadcast of Premier League football matches has been one of the key drivers behind a possible takeover.

In April, George Salmon, equity analyst at Hargreaves Lansdown, commented that the Premier League rights, which Sky secured for three more years, was a “game-changer” and that "the rights may come with multi-billion pound price tags, but Sky has proven the Premier League deals are well worth the outlay.”

What happens now?

News of the successful Comcast bid has sent Sky's share price soaring once again, up 8.6% at 1,721p in late-afternoon trading on Monday 24 September, within touching distance of Comcast's 1,728p bid.

However, despite Comcast taking control of the majority stake, Fox still owns 39% of the shares, although these will eventually pass to Disney as part of the asset deal assuming the firm decides not to sell its shares to Comcast, which would net it a tidy sum given the bidding war boost.

Ian Forrest, investment analyst at The Share Centre, said that for Comcast, the prospect of gaining Sky's 23mln customers across several large European markets proved "very tempting", providing the cable giant with a lucrative overseas business as it competes domestically with streaming firms.

IG market analyst Joshua Mahony adds that the purchase is another in a series of large US firms buying out UK companies as the weak pound helps to drive "bargain basement shopping" for conglomerates. Another key example of this was Coca-Cola's acquisition of the Costa Coffee chain after it was spun off from parent company Whitbread plc (LON:WTB) at the end of August. 

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