Rupert Murdoch Expands TV Empire With $14.6 Billion Sky Deal

  • Proposal values satellite carrier at 10.75 pounds a share
  • Deal takes advantage of weak pound, business-friendly Trump

Twenty-First Century Fox Buying Sky in $14.6 Billion Deal

21st Century Fox Inc. agreed to acquire the rest of Sky Plc for 11.7 billion pounds ($14.6 billion), in Rupert Murdoch’s second run at Europe’s dominant pay-TV company, as the media billionaire seeks to consolidate his television empire across two continents.

Fox will pay 10.75 pounds a share for the 61 percent of London-based Sky it doesn’t already own, according to a statement Thursday. That represents a premium of 36 percent over Sky’s closing price on Dec. 8, the day before the companies disclosed a preliminary offer. Murdoch is returning after a previous bid was thwarted in 2011 over a phone-hacking scandal at his newspapers.

Rupert Murdoch

Photographer: Jonathan Alcorn/Bloomberg

The deal gives Fox a distribution platform 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, and has been adding exclusive entertainment and original content to its core sports offerings while expanding into broadband and mobile service.

“The combined company will be a global creative and consumer powerhouse,” Lachlan Murdoch, co-chairman of Fox and Rupert Murdoch’s son, said on a conference call.

For the Murdochs, the timing of the deal is right: Momentum behind U.S. stocks continues to build as traders bet that President-elect Donald Trump will follow through on promises to cut regulations and reduce taxes, helping to drive earnings growth. In the U.K., the pound weakened against the dollar after the Brexit vote, which makes the acquisition cheaper for New York-based Fox.

The latest talks between the two companies began in early December, when Fox Chief Executive Officer and Sky Chairman James Murdoch invited Sky Deputy Chairman Martin Gilbert to Fox’s headquarters in New York, a person with direct knowledge of the situation said. The meeting took place on Dec. 7, with Rupert, James and Lachlan Murdoch present at James’s office, said the person, who asked not to be identified because the gathering wasn’t public.

The Fox executives outlined three options, saying they could sell their existing Sky stake, make a bid for the entire company or reach an agreement with Sky’s board on a recommended offer, and they made clear they preferred the third choice, the person said.

The Fox executives initially suggested an offer about 30 percent above Sky’s trading price, and later settled on the higher premium that was disclosed last week, the person said. Additional sweeteners were added a day before Thursday’s final announcement, the person said. These include a 200 million-pound breakup fee and a 10-pence special dividend that Sky shareholders will receive if the deal isn’t completed by Dec. 31, 2017.

Media Convergence

Murdoch’s Sky bid follows AT&T Inc.’s $85.4 billion deal this year to acquire Time Warner Inc., as traditional media push for scale to combat online video services like Netflix and Amazon Prime. Both deals would establish new beachheads for the companies, combining the delivery of content with the content itself.

Sky shares have traded below the offer price, first disclosed on Dec. 9, as investors weigh regulatory and political risks to the deal. They declined 0.2 percent to 981.50 pence at 3:13 p.m. in London. Fox gained 0.8 percent to $28.23 in New York.

“I would not expect a government with Brexit already on its plate to start pushing hard on this,” said Stephane Beyazian, an analyst at Raymond James. 

The U.K. government can ask regulator Ofcom to check whether the merger might harm media plurality. Murdoch may be counting on changes to the landscape and in U.K. politics to clear the way. Unlike when Murdoch’s News Corp. bid for Sky in 2010, Fox doesn’t own any U.K. newspapers and the rise of digital outlets has made people rely less on on TV, radio and print publications to get their news.

Fox pledged to keep Sky’s headquarters in London and complete a 1 billion-pound investment in the campus. While some are concerned Sky News will lose its balance under Fox, the company said it expects the operation to maintain “its excellent record of compliance with the Ofcom Broadcasting Code,” which requires U.K. TV news to be impartial.

“We do think this passes regulatory muster,” James Murdoch said on the conference call. Murdoch said he expects “no meaningful concessions” to gain approval for the deal from regulators in the European Union or the U.K.

Before the offer, Sky had slumped this year amid concerns about the rising cost of sports rights, competition from digital rivals such as Netflix Inc. and skepticism about Sky’s ability to deliver double-digit revenue growth in Germany. Some analysts have questioned the deal’s strategic value.

“We scratch our heads in terms of what a distribution company headquartered in the U.K. does for a global content company headquartered in the U.S. over the long term,” Wells Fargo analysts led by Marci Ryvicker wrote in a Dec. 12 research note. “We’re not buyin’ it.”

Changing Sky

Sky has seen new competition from phone and cable companies, spending on exclusive programming such as HBO shows and original dramas like “Fortitude.” The company has paid record sums to air Premier League soccer matches and keep ahead of BT Group Plc, which also broadcasts some of the league’s games. To diversify further, Sky has has expanded into broadband, and it’s starting a mobile-phone service.

Murdoch has long made clear his desire to own all of Sky. He was derailed in his 2010 attempt to buy out other shareholders for 7.8 billion pounds, after revelations that two of his newspapers hacked into the mobile phones of celebrities and politicians.

Fox’s latest approach has spurred fresh complaints over corporate governance at Sky, where James Murdoch, 44, returned as chairman this year. James Murdoch was Sky’s CEO from 2003 to 2007.

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