Sky higher as Comcast jostles with Disney over Fox assets

A deal for Disney to buy several key Fox assets moved closer to a conclusion and could be agreed before the end of the year, according to reports overnight, though analysts on Thursday said it may not be easy for Fox to terminate its offer for Sky.

Disney wants to buy Fox's film studio and its stakes in Europe-focused Sky, India's Star and other international distribution assets. Talks kicked off again last week after breaking down in October.

Comcast is also continuing to pursue Fox, according to other reports, with the rationale for the largely domestically based company of bolstering its international presence and adding to its stable of cable networks.

A day earlier, the UK's Competition and Markets Authority said it had delayed by a month its provisional decision on 21st Century Fox’s £11.7bn proposed deal to take full control of Sky in order to sift through several thousands of submissions it has received. The watchdog had been expecting to publish its initial verdict on 18 December but said it would now be some time in mid-January.

“It is not unusual for us to update our timetables," a CMA spokesperson said. "In this case, we have received a large body of evidence – including numerous face-to-face hearings and more than 12,000 submissions – so it is vital that we spend the time to reach an informed and considered provisional view.”

This investigation could be rendered pointless as Fox is said to be willing to walk away from its deal to buy 61% of Sky and instead sell its 39% stake to Disney as part of the deal, CNBC reported.

However, assuming the press reports are accurate, analysts at RBC Capital Market said Fox cannot easily terminate its offer for Sky.

"Fox’s offer for Sky is bound by the UK Takeover Panel rules. Generally speaking, companies are not allowed to back down from takeover offers once made. A good example of this precedent was WPP’s offer for Tempus back in 2001 in which WPP unsuccessfully sought to invoke its material adverse clause post 9/11 in order to back down from its offer," the RBC analysts said.

Fox's Sky offer is subject to pre-conditions, which appear to have been satisfied and just await UK regulatory approval.

However, RBC noted there is a ‘long stop’ date of 15 August 2018, whereby if regulatory approval is not given by this point Fox may withdraw its offer.

"If approval is given by then, we believe Fox would be compelled to continue with its offer via the Scheme of Arrangement. As a reminder Fox is not allowed to use its 39% stake to vote."

If Disney were to acquire Fox’s 39% stake in Sky it would be required to make a mandatory offer, as the threshold is 30% in the UK, but Disney is felt likely to be keen on the deal as it would add instant critical mass in three of the four largest European economies as well as unique content.

RBC believe a "break price" for Sky in the event of a failed Fox bid is probably circa 700-750p compared to Fox's offer of 1075p cash.

On the Fox deal, analysts at Jefferies said they saw Disney as the "more likely suitor" given likely regulatory concerns with a Comcast deal.

"Regulatory risks around the on-going merger of AT&T-Time Warner could suggest similar antitrust concerns regarding the marrying of additional content assets with Comcast's distribution platform. With many similarities between the DIS/CMCSA assets, and what appears to be a highly probable sale outcome, to what extent taxes, succession, price, and the likelihood of approval are the key issues (in order) to the Murdochs is unclear.

"What does appear to be clear is a public process that will look to maximize value to FOXA."