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Clash of the (media) titans: What is driving the Fox, Comcast, Disney bidding war over Sky?

What started out as a seemingly mundane takeover of the British broadcaster has escalated into a massive bidding war between three media giants, but how did we get to this point?
Disney, Fox and Comast logos
Comcast has been a thorn in the side of Fox and Disney since February

There has been yet another twist in the tale of the ongoing bidding war over broadcaster Sky PLC (LON:SKY).

US media corporation Comcast (NASDAQ:CMCSA) offered US$65bn for a big portion of assets owned by Rupert Murdoch’s 21st Century Fox (NASDAQ:FOX), trumping a US$52.4bn bid made by The Walt Disney Company (NYSE:DIS).

READ: Sky shares rise after Disney US$88bn bid for 21st Century Fox

However, Disney has returned to Fox with a sweetened deal, upping its bid to around US$71.3bn with Fox's shareholders able to receive the consideration in cash or stock as opposed to Disney's previous all-stock offer. 

This is just the latest development in what has been a confusing and ever-shifting sequence of events between the three media titans over what was initially considered to be a relatively mundane takeover of Sky.

Which begs the question, what exactly is going on, and why?

What has happened so far?

Fox initially attempted to purchase the remaining 61% of Sky that it does not currently own and made a £19bn offer for the remaining two-ish thirds of the broadcaster.

On 27 February, Comcast made a surprise bid for Sky at £22.1bn, 16% higher than the £19bn offer from Fox.

Sky shares jumped 20% on the day while the company withdrew its recommendation of Fox’s takeover bid.

The UK’s regulators did not seem too bothered about Comcast’s presence, with the culture secretary Matt Hancock approving both takeover bids in June, although with the caveat that Fox must sell off Sky News amid concerns of Murdoch’s influence in the UK media.

READ: UK government approves Fox's takeover of Sky as long as it agrees to sell off Sky News

Which brings us to the latest development, the Comcast bid for Fox’s assets that originally Disney had its eye on.

In another swooping move, Comcast offered US$65bn for the Fox assets, which include its movie and TV production arms (as well as the 39% of Sky owned by Fox), to overtake Disney’s initial US$52.4bn bid.

Disney then returned fire by upping its bid for Fox to around US$71.3bn, with Fox's shareholders able to receive the consideration in cash or stock as opposed to Disney's previous all-stock offer.

It followed a development in the US courts on 12 June, when a Federal judge approved a massive US$85bn takeover of US cable giant Time Warner (NYSE:TWX) by telecoms conglomerate AT&T (NYSE:T), which has seemingly cleared the way for other massive corporate mergers.

What is driving the bidding war?

One of the main reasons for the fight over Fox and Sky is the continued rise of streaming services as a replacement for cable-TV subscriptions.

Streaming giants such as Netflix (NASDAQ:NFLX), armed with huge programming budgets, are causing consumers to abandon cable-TV subscriptions at an increasing rate, which is cutting into media company profits.

Whoever gains control of Fox’s assets would have access to a bundle of iconic franchises including ‘The Simpsons’ and ‘X-Men’ (particularly interesting for Disney’s Marvel arm) among others, which would make their streaming offerings much more alluring.

Disney has already pulled most of its content for its own streaming service, intending to use its vast library of hits, which now include the Marvel Cinematic Universe and Star Wars (and Pixar!), to compete in the new media market.

The purchase of Fox’s assets would also give Comcast or Disney control over one of Netflix’s few real competitors, Hulu, as each of the three companies currently own a 30% stake in the streamer.

Regarding Sky, its right to the broadcast of Premier League football matches is one of the key drivers behind a possible takeover.

In April, George Salmon, equity analyst at Hargreaves Lansdown, commented that the Premier League rights, which Sky secured for three more years, was a “game-changer” and that "the rights may come with multi-billion pound price tags, but Sky has proven the Premier League deals are well worth the outlay.”

So what happens next?

If Sky’s share price is anything to go by, there will be a higher bid coming, as the share price has already blown past Comcast’s offer of 1,250p per share and was sitting at 1,335p, a 6.8% premium, at last close on 13 June.

Analysts at Canadian bank RBC are already predicting that Comcast will have to up its bid for Sky, given the share price performance, forecasting a new bid of around 1,318p per Sky share.

Regarding the more macro bidding war over Fox’s assets, two scenarios are possible: either there is a carve-up where Comcast and Disney agree to share the Sky and Fox assets to avoid too much debt, or a cutthroat outcome where one out bids the other for everything.

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