Fox Said to Stick With Initial Price for Now in Sky Offer

Updated on
  • Murdochs said to not rule out raising offer to help seal deal
  • Official offer expected to be announced as soon as Thursday

21st Century Fox Inc. may announce a formal bid for Sky Plc as soon as Thursday, people familiar with the matter said, and is hoping shareholders will accept its opening offer of 10.75 pounds per share.

Should the bid not get the required support, Fox executives haven’t ruled out offering a higher price to finally secure a deal that’s been more than five years in the making, the people said, asking not to be identified as the details aren’t public. 

Lachlan, left, and James Murdoch

Photographer: David Paul Morris/Bloomberg

Fox is leaning toward structuring the offer as a so-called scheme of arrangement, one of the people said. That would make it easier to buy out those that refuse to sell, provided at least 75 percent of Sky’s other holders approve the plan. No final decision has been made and the value and structure of any deal could change, the people said.

Representatives for Fox and Sky declined to comment.

Fox and Sky announced Friday they’d reached a preliminary agreement for Fox to take control of the 61 percent of Sky it doesn’t already own in a deal valuing the London-based company at about 11.2 billion pounds ($14.2 billion). Sky shares have remained below the offer price since the deal was made public, reaching a high of 1,050 pence on Friday as markets weigh potential regulatory and political hurdles. They slipped 0.3 percent to 985.5 pence at 10:15 a.m. in London.

Shareholder Pressure

Taking control of Sky would give New York-based Fox a powerful distribution platform in Europe for pay television and internet, to complement its film studio and cable channels like FX and National Geographic. Sky provides satellite-TV service to 21.8 million customers across the U.K., Ireland, Italy, Germany and Austria.

The bid revives a 2010 offer that was derailed amid a phone-hacking scandal at newspapers controlled by Rupert Murdoch, Fox’s billionaire co-chairman.

Fox has come under pressure from shareholders ever since it said in August it was slowing share repurchases. In his most recent public remarks, Fox Chief Executive Officer James Murdoch said at an investor conference this month that “we want to be very, very disciplined when we think about capital allocation.”

Doug Creutz, analyst at Cowen & Co., said in a note on Dec. 12 that “Fox has better uses for its capital than spending it to be able to consolidate an asset that it already effectively controls.”

Still, the company is being urged by some Sky investors to increase the price of the offer, currently a level at which Sky’s shares traded in February.

Sky’s stock fell 29 percent this year through Dec. 8, the day before the preliminary offer was announced. The slump came in tandem with the U.K.’s June vote to leave the European Union, which sent the pound plunging and made Sky a far cheaper target. It also reflects concerns about the rising cost of sports broadcast rights, competition from new entrants such as Netflix Inc. and skepticism about the company’s ability to deliver double-digit revenue growth in Germany.

‘Appropriate Premium’

Local Authority Pension Fund Forum, an association representing U.K. pension funds that own some of Sky’s stock, called for an “appropriate premium” on Tuesday but declined to comment specifically on the price.

“All directors of Sky have a duty not to disadvantage the public shareholders, and the position of the non-executives will need to be robust to ensure that the premium paid is appropriate and that shareholders are not disadvantaged by any temporary low in the share price,” the group said in a statement.

Macquarie analysts led by Guy Peddy in London said in a Dec. 12 research note that there is a possibility the price will get updated as the final terms are agreed.

Fox executives flew to London over the weekend to seal a final agreement, people familiar with the matter said previously. Fox’s negotiations are being led by James and Lachlan Murdoch, along with chief financial officer John Nallen and Rupert Murdoch.