Mergers and Acquisitions Media

'Parallel journeys' – why Comcast bid over the odds for Sky


By John McCarthy, Opinion editor

September 24, 2018 | 7 min read

Sky shareholders have accepted a £30bn takeover bid from Comcast. With this deal, Comcast has snatched the European pay-TV and broadband firm from the clutches of rival Fox, while doubling its customer base and establishing a sizeable operation in Europe.

The internet and media giant was keen to expand its global footprint and bolster its original content capabilities – much like AT&T is planning with HBO – to fortify against Netflix and stave a generation of cable cutters from dropping their TV/broadband packages.

Comcast’s current original content holdings come courtesy of NBCUniversal (Universal, Dreamworks, CNBC, SYFY, NBC, Telemundo, Bravo) and now it has planted its flag down in Europe with the acquisition which was accepted on Monday morning.

The process

Comcast reportedly started pursuing Sky in earnest in June 2017. It endured three rounds of bidding, eventually winning the day with a bid of £17.28 per share, significantly higher than Disney-backed Fox’s bid of £15.67.

CNN reports that the fee was “well over twice the price Sky shares were trading at before the latest takeover saga started in December 2016”. Criticism that it paid over the odds for the property is not unfair. A document from Sky said that “shareholders have benefited from seven months of competitive tension” between Fox and Comcast.

Comcast anticipates it will sidestep the anti-trust issues that would have mired Fox’s takeover. While Fox was bidding for Sky, Disney had secured Fox for $71.3bn. The major jutting point of Fox's Sky takeover was around the ownership of Sky News. The UK’s competition watchdog expressed fears for media plurality if Sky News was to enter Murdoch’s holdings. Fox would have had to sell it off – or Disney would have to have run it separately.

Why Sky?

Sky Television was founded in 1989 by Murdoch's News International, offering nine channels including Sky News. Since then it has grown into a European telco giant, charting much the same course as Comcast in the US. Its growth can be attributed to the boom of the Premier League (founded 1992), the exclusive draw of Fox’s The Simpsons on Sky One and the Sky Box Office movie-on-demand portfolio – before the rise of digital video on demand combatants like Netflix.

On the UK telecoms front, Sky's biggest rivals are BT (EE owner) and Virgin Media.

Brian Roberts, chairman and chief executive officer of Comcast, applauded the acquisition: “This is a great day for Comcast. Sky is a wonderful company with a great platform, a tremendous brand, and an accomplished management team. This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally. We couldn’t be more excited by the opportunities in front of us.”

Comcast Cable has in the blink of an eye secured 23 million European customers across the UK, Ireland, Germany, Austria, Italy, Spain and Switzerland. It measures up well to the 29 million North American customers it already has, bringing the overall figure to 52 million.

The superior cash proposal document from Sky (27 February 2018) outlined some of the reasons Sky has now joined the Comcast family.

It said Sky will deliver a “wider geographic footprint to distribute its content and to increase its technology innovation". Meanwhile, Sky’s “growing library of owned content” will run in the United States.

With original content vital to fueling the growth of media and telcos, Comcast will be able to bring into the fold Sky’s efforts – like the recent Benedict Cumberbatch vehicle Patrick Melrose, which ran on Showtime in the US.

A later document also noted that Comcast now has a presence in “primarily three of the top five entertainment and communications markets in Europe (UK, Germany and Italy)”. Comcast chief executive Roberts described Sky as “very valuable” in helping the company expand internationally.

He said "the UK is and will remain a great place to do business" and added that London will be used as a “platform for our growth in Europe”.

Sky’s input is expected to increase Comcast's international revenues from 9% to 25%. In the nine months leading to 31 March 2018, Sky's like-for-like revenue grew by 5% (£441m) to £10.14m.

In April, Arthur Block, director of Comcast, noted the similarities between Comcast and Sky: “Comcast has followed closely Sky’s impressive transition from an innovative startup satellite TV provider to a leading European, multi-platform, premium branded entertainment business that offers premier content to 23 million retail customers. Comcast believes that, in many ways, Comcast and Sky have been on parallel journeys.”

What does it mean for the UK?

Comcast made some promises in the acquisition documents.

Sky UK’s HQ at the Osterley campus in London boasts more than 1,300 staff. Comcast said the takeover will have a “limited impact on headcount,” adding there won’t be a “material impact on the continued employment of the employees and management of Sky". Furthermore, this HQ will be used as a springboard to aid international growth – adding to the $1bn NBCUniversal has already invested in film and TV in the region in the last three years.

It also outlined support for the UK creative industries; Sky can expect a larger production budget to produce more originals that will enjoy a global audience. On the innovation front, Sky’s technology hub in Leeds and its Software Engineering Academy scheme will work with Comcast and NBCUniversal’s existing efforts to create new products. There will be a crossover between these teams.

The Sky shareholder response

Martin Gilbert, chairman of the Independent Committee of Sky, said: “We consider the Comcast offer to be an excellent outcome for Sky shareholders, and we are recommending it as it represents materially superior value. We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast offer.”

There are reports in the media that the cost of the takeover will be passed on to the consumer. This happened after the cost of securing live coverage of the Premier League set back Sky by £1.39bn per annum. It could damage relations with existing customers if so.

Additionally, the future of over the top media company Hulu comes into question: Comcast, Disney and Fox own 30% each, AT&T has a 10% stake too. However, Disney’s Fox takeover will see it secure 60% of the company. This may impact AT&T and Comcast’s holdings in the asset. Of course, Comcast now takes control of Now TV in Europe, a subscription-based OTT service that operates on short-term passes, as a means of granting quick hits to Sky’s service and endearing consumers to the brand.

Earlier this year, Sky toasted "exceptional" financial performance, and it will be hoping for more of the same following the takeover.

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