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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
With Comcast dropping its bid for Fox's assets, the end game around Sky appears to be nearing

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

21st Century Fox Inc (NASDAQ:FOX), owned by media giant Rupert Murdoch, has posted an offer document and form of acceptance for its 1,400p offer to buy the company.

The formalised offer, which will be in the form of a takeover and will require the approval of 75% of Sky's shareholders, extends the deadline for a revised offer until the 22 September 2018.

READ: 21st Century Fox posts formal offer document for Sky takeover bid

The move followed a clarification from the UK takeover regulator on 7 August that Fox would have until Thursday night to submit a proposed offer that was higher than the current bid of rival media company Comcast Corp (NASDAQ:CMCSA), which upped its bid in July to 1,475p per share for the 61% stake not currently owned by Fox.

This is just the latest development in what has been a confusing and ever-shifting sequence of events between three media titans, Fox, Comcast, and fellow media conglomerate The Walt Disney Company (NYSE:DIS) 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 then 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

However, Fox returned fire in July with an increased offer for the Sky shares at 1,400p, or £24.5bn, much higher than its initial bid and overtaking Comcast's offer of 1,250p, or £22bn.

This was reversed shortly afterwards as Comcast replied with its own revised bid of 1,475p per share, taking the highest bid total for Sky to £25.9bn.  

Despite the focus on Sky, the tussle was part of a wider bidding war that included a plethora of Fox's media assets over which Comcast was battling Disney.

Following an initial US$52.4bn bid for the Fox assets by Disney, which includes its movie and TV production arms (as well as the 39% of Sky owned by Fox), Comcast swooped in with its own US$65bn offer.

Disney then retaliated by upping its bid for Fox's assets 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.

READ: Comcast drops 21st Century Fox bid to refocus on the pursuit of UK pay-TV firm Sky

The move proved a step too far for Comcast, who on July 19 dropped its bid for the Fox assets, saying it would instead "focus on [its] recommended offer for Sky".

The battle over the assets followed a development in the US courts on June 12, 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.

With Comcast now out of the picture, the purchase of Fox’s assets would give Disney control over one of Netflix’s few real competitors, Hulu, as each of the three companies currently owns 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, investors may still be betting on the potential for higher bids. At last close on 7 August, Sky's share price was at 1,520p, a premium of 2.9% over Comcast's current bid price.

READ: UK Takeover Panel confirms Walt Disney would have to offer at least 1,400p a share to buy satellite TV broadcaster Sky

The UK's takeover panel also confirmed on 3 August that Disney would have to make a mandatory offer of at least 1,400p per share for Sky if it completed its purchase of the assets from Fox before either of the two other companies gained control of the broadcaster.

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