By Liam Proud
LONDON (Reuters Breakingviews) - Rupert Murdoch’s next foe in his battle for Sky may be hedge funds. The tycoon’s Twenty-First Century Fox should be able to win regulatory approval to buy the 61 percent it doesn’t own of the pay-TV group. But holdouts could attempt to sink the deal unless they get a higher price.
The UK competition authority on Tuesday said Fox’s 11.7 billion pound bid would give Murdoch too much influence over British news. But it also said that its concerns would fall away if Walt Disney’s $52 billion offer for Fox assets, including Sky, goes ahead. In the meantime, Fox can ring-fence Sky’s news operation to protect its independence.
Sky investors may be less forgiving. Eight hedge funds have acquired shares or derivatives equivalent to 13 percent of Sky’s capital since mid-December, according to a Breakingviews analysis. Fox needs support from three-quarters of independent shareholders for the deal to go through. Assuming 80 percent turn up to vote, a rebellion equivalent to just 12 percent of Sky’s capital could sink it.
Investors could justify a higher price than the 10.75 pounds on offer. Sky’s core business selling TV subscriptions in Britain has grown steadily since Fox’s December 2016 offer; group revenue was 5 percent higher year-on-year in the six months to the end of 2017, the company said on Thursday.
Then there are the imminent auctions for England’s Premier League soccer. Sky currently pays almost 1.4 billion pounds a year to broadcast the games. But rival bidder BT is cash-strapped, and the two have struck a deal to show each other’s TV channels, suggesting bidding may be less fierce than previously. Investec reckons even a 20 percent step up in rights costs could add 39 pence to Sky’s share price. Lastly, there’s Disney. Even if Murdoch were to refuse to increase his offer, Disney may want to buy out the minorities itself later.
Opposing Fox may backfire. Murdoch could reduce the acceptance threshold to just 50 percent by switching to a takeover offer rather than a scheme of arrangement. And the Magic Kingdom’s motives aren’t clear; it might be happy to leave minority shareholders outstanding for years.
Sky’s share price is languishing about 4 percent below the offer price, which augurs poorly for a bump. But with the regulatory fog clearing, there’s scope for another twist in the takeover drama.
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