February 27, 2018 / 6:59 PM / 4 months ago

Breakingviews - Murdoch holds winning hand in Sky poker game

By Jennifer Saba

Tennis - US Open - Mens Final - New York, U.S. - September 10, 2017 - Rupert Murdoch, Chairman of Fox News Channel stands before Rafael Nadal of Spain plays against Kevin Anderson of South Africa. REUTERS/Mike Segar

NEW YORK (Reuters Breakingviews) - Comcast Chief Executive Brian Roberts just did the deal equivalent of a photobomb. But it’s Rupert Murdoch who may end up smiling.

The owner of NBC Universal offered to buy Sky for $31 billion. This poses a dilemma for Walt Disney chief Bob Iger. He can try to outbid Comcast or reduce his price for Twenty-First Century Fox’s assets, excluding its 39 percent stake in the European pay-TV firm.

Keeping track of the frenzied media M&A landscape requires a cheat sheet. First, Fox made an offer to buy the rest of Sky in 2016, but it’s still waiting for approvals from reluctant British regulators. Meanwhile, in December Disney announced it would pay $52.4 billion for Fox’s movie studios, cable networks and international units, including the Sky stake.

On Tuesday, Comcast bellied up to the table and topped Fox’s offer by some 16 percent. Disney could counter with a move for all of Sky too. Prospects of a bidding war probably explain why Sky’s shares rose 20 percent Tuesday to 13.32 pounds, significantly above Comcast’s offer.

Then again Iger may decide to renegotiate his deal to exclude Sky rather than running the risk of ending up with a minority position in a company run by Comcast. Say that the Magic Kingdom accepts Fox’s valuation of its equity position in the satellite operator, which it pegged at $9.2 billion at the end of last year, according to its latest regulatory filing. That would reduce its purchase price to about $43.2 billion. This would free up Murdoch to sell the minority position in Sky to Roberts for about $12 billion at the current offer price, which may yet be raised. All in, Murdoch and Fox shareholders would receive $55 billion, or $2.6 billion more than Disney’s original offer.

There are still many possible cards to play, which make this deal game increasingly risky. U.S. regulators could refuse to rubber-stamp Disney’s offer for Fox, given that it would combine two major studios and increase Iger’s interest in Hulu. The Department of Justice could win its case against AT&T, freeing up Time Warner to enter the fray. But as the seller in a seller’s market, Murdoch looks set to come out ahead under almost any scenario.

Breakingviews

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