21st Century Fox bumps up Sky offer, trumps Comcast

Rupert Murdoch's 21st Century Fox has upped its offer for the Sky shares it does not already own to £14 per share, trumping the latest offer from Comcast by around 12%.

The offer, which is up from a previous £10.75 per share, remains subject to the approval of the UK Secretary of State, which is due to make a final decision by Thursday.

The offer price represents a premium of around 82.1% to the closing price of Sky shares on 6 December 2016 - the last business day before it received the proposal from Fox - and implies a value of around £24.5bn.

Fox, which is the founding shareholder in Sky and currently owns approximately 39.1% of the London-listed broadcaster's shares, said it has secured backing for the deal from the company's Independent Committee.

"21CF is proud to have participated in Sky's growth and development. Sky's transformation over the past 25 years into Europe's leading entertainment brand has been extraordinary. As the founding shareholder of Sky, 21CF has remained deeply committed to bringing these two organisations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future. 21CF strongly believes that a combined 21CF and Sky will be a powerful driver for the continued growth and vibrancy of the UK and broader global creative industries.

"The enhanced scale and capabilities of the combination will enrich Sky's ability to continue on its mission for years to come, especially at a time of dynamic change in our industry. This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe."

Shore Capital analyst Roddy Davidson said the sweetened offer substantially overvalues Sky based on its underlying growth potential and the fact that it faces a number of significant challenges going forward, including a significant increase in its competitive environment, pricing pressure, sports rights inflation and the growing obsolescence of its satellite delivery platform.

"That said, this process now embodies a strong element of corporate bravado so it is difficult to call whether Comcast will return. We note that Sky’s stock is already sitting above 1400p in early trading, but our gut feel at this time is that Comcast may decide to focus on gaining ownership of Sky through its on-going approach for 21st Century Fox’s entertainment assets as a whole.

"Either way we regard this as a fantastic exit value for Sky shareholders and suggest they at least hedge their bets by taking some money of the table at these levels."

George Salmon, equity analyst at Hargreaves Lansdown, said: "Fox coming back in for Sky isn’t a surprise in itself, but the fact the offer is slightly behind what some had anticipated brings another twist. In fact, there’s every chance it might entice another counter from Comcast. That might explain why the shares still trade above the latest offer price.

"Whoever ends up in control will have acquired an attractive asset, but the price tag can’t be ignored. Before Fox’s original offer, Sky was trading at under £8 a share. Yes, securing another three years of Premier League football at a lower cost is a significant development, but if the bidding war rumbles on much longer, the risk of over-paying becomes all the more real."

Meanwhile, Mike van Dulken, head of research at Accendo Markets, said: "Are we to expect a 35% higher bid from Disney at 1,450p? Perhaps Murdoch’s move today is a compromise offer, obliging it to match his 1,400p/30% better offer, saving it from improving by the full 35%? Might we get a 17.5% advance to 1,469p from Comcast, keeping the bidding war alive? The shares above 1,400p imply confidence that this bidding war still has legs.

"The risk of course is that neither Disney nor Comcast follows through, both deciding that valuations on Sky have got too stretched. This would force Murdoch/Fox to pay much more for full control of Sky than originally intended, even if the business has positively evolved over the last 18 months, media assets more in demand amid."

At 1125 BST, the shares were down 0.6% to 1,493p.