Sooner or later, the time is right to sit on the fence and that’s the position adopted by UBS on takeover target Sky PLC (LON:SKY).
The Swiss bank has increased its price target to 1,600p from 1,500p but that has not stopped it from downgrading the satellite TV pioneer to ‘hold’ from ‘buy’ following the two-thirds increase in the share price over the last year.
‘READ: 'Sealed bids’ auction for Sky draws near as investors hold out for more money
The meteoric rise was sparked by the bidding battle for the pay-TV, internet service provider and telecoms giant between Twenty-First Century Fox Inc (NASDAQ:FOXA) and Comcast Corporation (NASDAQ:CMCSA).
“Sky shares are already trading above the 1475p offer price from Comcast and we think the shares are pricing in a relatively high probability that Disney/Fox will return with a higher offer,” UBS declared.
The Swiss bank thinks Sky is strategically valuable to both Fox (and its fellow traveller Disney) and Comcast. Both have until September 22 (Saturday) to revise their offers but UBS thinks the most likely outcome will be an auction triggered by the UK Takeover Panel.
READ: Sky could be up for auction if Takeover Panel intervenes in Comcast-Fox bidding war
The Takeover Panel rarely uses its authority to launch auctions in takeover situations. There have been just three auctions handled by the regulator since 2007, including the £6.2bn sale of steel-maker Corus to India’s Tata Steel.
An increase in the Sky offer price to UBS’s target price of 1,600p would only have a minimal impact on the gearing of either bidder - increasing leverage by 0.1x for either bidder.
Media control: The Conservative govt refuses to allow anyone to purchase Sky plc (Sports, Cable TV, news, broadband, etc) unless it "preserves the editorial independence of Sky News", ie you can't turn it into a US-style Fox News so the British people can get a pro-Brexit channel
— David Vance (@DVATW) September 19, 2018
“The Comcast offer is 1475p and we think investors see upside of 1,600-1,700p if an auction ensues. At a mid-point of 1650p for the upside, the current share price implies a c60% probability that Disney/Fox will counter Comcast with a higher offer,” UBS said, having done some calculations on the back of an envelope.
Its stand-alone valuation for Sky is 1,342p-1,363p but it sees merger synergies of 187p-261p, assuming Sky shareholders receive a 60% share of the enlarged group, giving a valuation range of 1,528p-1,625p.
pls buy sky plc and stop disney @comcast
— cris ???? (@faketalesoflove) September 19, 2018