Having spent the weekend mulling over the deal, shareholders in Sky PLC (LON:SKY) were this morning more sanguine about the move by Rupert Murdoch's 21st Century Fox (NASDAQ:FOXA) to take over the pay-TV firm.
Late on Friday, Murdoch's Fox tabled a £10.75 a share cash bid, backed by Sky's independent directors, in its second attempt to buy the 61% of the firm that it does not currently own, sending the shares soaring by over a third in value to a nine-and-a-half month high.
But the shares slipped back this morning, down 2p to 998p in morning trading as some shareholders expressed disappointment that the firm has not pushed to better the £18.5bln total takeover bid.
Alastair Gunn, a fund manager at Jupiter Asset Management, was quoted by the Sunday Telegraph newspaper as saying the move "ought to be the start of the process, not the conclusion."
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An unnamed shareholder was also quoted by the paper as saying: "Our initial reaction is one of serious disappointment that they have rolled over like this."
Meanwhile, analysts at Citigroup characterised the offer as a "low-ball bid" in a note to clients, citing a fair value assessment of £13.50 a share.
News reports said Sky rejected a lower priced offer from Fox last week before securing the improved terms after two days of talks between the two firms.
Traders said the US firm has pounced on Sky now as the group’s share price has seen big falls, while the US dollar has jumped 14% against the pound since Britain's vote to leave the European Union in June, making a deal less expensive for Fox.
The move would give Fox control of a pay-TV network spanning 22 million households in Britain, Ireland, Austria, Germany and Italy.
Fox’s chief executive James Murdoch – son of Rupert – was reappointed as Sky’s chairman earlier this year.
Modest bid increase possible
However, analysts at Liberum Capital said that although some shareholders have complained about the price “we do not expect Fox to come up with a materially higher bid.”
“Our view is that Fox may make a relatively modest increase in its cash bid to make it look as though it has listened to other shareholders but there is unlikely to be a major revision upwards and we do not think anyone else would come in with a bid, given Fox already has 39.1% of the shares.”
In an initial note to clients late on Friday, Liberum upgraded its recommendation for Sky shares to ‘hold’ from ‘sell’ with a target price of 1,060p, based on the offer of 1,075p with a 15p deduction for an assumed Interim dividend paid by Sky.
They also played down the possibility that regulators could block the proposed takeover.
In 2011, Murdoch’s News Corporation - which afterwards split into 21st Century Fox and News Corp - withdrew a previous bid for the shares in Sky it did not own at the height of the furore over the phone hacking scandal at its UK newspapers.
However, the Liberum analysts do not think there would be any such political or regulatory issues now given that 21st Century Fox no longer has any UK newspaper assets since the split, while the phone hacking scandal has died down.
They also highlighted the fact that the UK government is now a majority Conservative one, not a Conservative-Liberal Democrat coalition as was in power in 2011, and it is keen to promote investment in the UK post-the Brexit vote.
The analysts said: “We doubt therefore it would want to veto what could be viewed as a major sign of confidence in the UK market.”
Cable still negative
But the former minister who referred the tycoon's previous bid, Vince Cable, still believes Murdoch's new takeover approach for Sky should be investigated by the UK's competition authorities.
Cable , who was Britain's business secretary at the time of Murdoch's first bid in 2010-11, told BBC radio that the media tycoon's new bid would not be in the public interest.
He said: “This is yet again a threat to media plurality, choice, just as it was six years ago when I referred this to the competition authorities and it should be investigated.
"The ownership of the media, whether you're looking at press, radio, television is very highly concentrated and this makes it even more concentrated."
It will be up to the current culture, media and sport minister, Karen Bradley to decide whether the situation has materially changed since 2010.
Analysts at Investec Securities said: “We see this as a positive outcome for SKY investors given operational/structural pressures and we believe regulators may be better disposed, though ‘anti-Murdoch’ sentiment remains an issue.
In a note to clients today, they added: “We would be surprised if there was not an Ofcom review, but feel more confident on media plurality questions now vs the previous bid.”
And analysts at Numis Securities added: ”As Fox used to own a majority of Sky Deutschland and all of Sky Italia until recently, clearly there should be no issues here.
“However, given political sensitivities we expect a full review by the competition authorities.”
They also said: “We concur with weekend press comment from shareholders that the offer price is low, though given the absence of a likely rival offer and agreement from independent directors, it may prove difficult to extract a materially improved bid.”
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