Comcast, Murdochs go to war over Sky News

For months, Rupert Murdoch has gamely struggled with British regulators to buy Sky News outright, taking over full ownership of the satellite news service. Until now, his 21st Century Fox had the only bid on the table for the 61% that the Murdochs do not control. Suddenly, one of his biggest American competitors has jumped into the fray, and might make the UK’s regulators a lot more comfortable:

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U.S. cable giant Comcast (CMCSA.O) offered to buy Sky (SKYB.L) for $31 billion in an unsolicited approach, taking on Rupert Murdoch’s Fox and Bob Iger’s Walt Disney in the battle for Europe’s biggest pay-TV group.

The world’s biggest entertainment company, which owns NBC and Universal Pictures, said on Tuesday it proposed to offer 12.50 pounds per share, significantly higher than the 10.75 pounds Fox (FOXA.O) had agreed to pay for the British company

The offer pits Comcast’s Brian L. Roberts against Murdoch, the 86-year-old tycoon who helped to launch Sky and pioneer pay-TV in Britain. Iger is also a long time rival after Comcast tried and failed to buy Disney (DIS.N) for $54 billion in 2004.

Disney isn’t directly involved in Murdoch’s bid for Sky News, but the acquisition might have serious consequences for Iger. He had reached an agreement to buy up 21st Century Fox’s non-news properties, mainly its entertainment-industry properties but also eventually including Sky, in a bid to gain more leverage in the digital media markets. The Murdochs would get $52 billion for that sale and a streamlined organization much more focused on news and information. If Murdoch can’t get Sky, Disney might not be as inclined to buy the other parts of his empire.

As CNN points out, Iger might have to take the reins himself. He has to approve a counteroffer from the Murdochs now, or perhaps decide to touch off a bidding war more directly:

If 21st Century Fox (FOXA) wished to counter Comcast’s offer, it would likely need approval from Disney. Analysts with the investment firm Jeffries said they think a bidding war could ensue between Fox and Comcast, or that Disney might make “a direct offer to Sky shareholders.”

“[Disney CEO Bob Iger] has described Sky as the ‘crown jewel’ asset among the Fox operations he is seeking to acquire. Just as with Comcast, adding more international distribution (direct to consumer) and content production is strategic to countering Netflix, Amazon, etc.,” the banks’ analysts said in a flash note. “A counter-bid from [Disney] would avoid the regulatory complexities/delays in much the same way as the Comcast approach.”

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It would neatly avoid all of the regulatory obstacles the UK has put in Murdoch’s path. The markets expect a bidding war, with Sky stock shooting up over 20% on the news, but it may not come to pass. Iger could just settle for buying the 39% already owned by Murdoch and partnering with Comcast rather than spend more capital trying to push their competitor to the sidelines.

But why has Comcast jumped into this at all? Revenge might be one motive:

Comcast has circled 21st Century Fox in the past. Last year, the cable giant was in preliminary talks to buy the entertainment assets owned by 21st Century Fox, including the minority stake in Sky. Disney ultimately prevailed.

At the very least, Comcast has likely made it more expensive for 21st Century Fox to buy all of Sky. Under the terms of its proposed bid, Comcast said it would pay £12.50, about $17.50, a share in cash. That would represent a premium of 13 percent over its closing price on Monday and is about 16 percent above 21st Century Fox’s current offer of £10.75.

Comcast and Disney may not be the only bidders for Sky now that it appears to be a free-for-all:

In a research note on Tuesday, Polo Tang, a UBS analyst, said that Sky could be “strategically interesting” to a variety of bidders, given its content and its broadcast and streaming distribution network. It also recently retained the rights to the Premier League at a lower cost than analysts had expected.

Mr. Tang said that the benign outcome of the Premier League auction potentially “gives Fox scope to raise its offers.”

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At the very least, Comcast has thrown a wrench into Disney’s plans for Fox properties and will force Iger to pay a lot more than he first thought. Either that, or Comcast will get Sky and Disney will miss an opportunity for media access in the UK. This should be an interesting, and yes, entertaining financial war between three giants in the news and entertainment industries. The only real problem for observers is choosing which giant to root for.

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