Comcast and Fox Headed to Saturday Auction for Sky – Here’s What That Means

Mergers are handled much differently across the pond

Last Updated: September 20, 2018 @ 9:33 AM

The battle between 21st Century Fox and Comcast for British pay-TV company Sky PLC is headed for a little-used aspect of how mergers and acquisitions are handled in the U.K.: An auction, which will take place this weekend.

“In order to provide an orderly framework for the resolution of this competitive situation, and in accordance with Rule 32.5, the Panel Executive has, after discussions with the parties, established an auction procedure which, assuming that a competitive situation continues to exist, is expected to commence at 5 p.m. (London time) on 21 September 2018 and end during the evening of 22 September 2018,” the U.K. Takeover Panel said on Thursday.

The U.K. Takeover Panel, which oversees all mergers and acquisitions, sets a deadline that, if there are still multiple suitors for a company, will trigger an auction to determine the winning bidder. In this case, Fox and Comcast have until Saturday, 5 p.m. local time to either bow out or make their “best and final offer” for Sky. If neither side has done so, then the auction will kick in, which will consist of three rounds, all on Saturday.

Here’s how the process will play out:

The company with the lower offer, in this case Fox, will make the first bid. Comcast will then get a chance to make a counter-bid in the second round. If Fox does not concede after that, there will be a third round where both companies will submit increased offers. Sky shareholders will then decide which bid to accept.

The Takeover panel will publish details of each side’s offer after the auction no later than Sept. 24.

Typically, an auction would last for five consecutive days, but the Panel allows for all involved parties to figure out the process themselves, as long as it doesn’t skirt any official rules. There have only been three British takeover situations since 2007 that have involved auctions handled by the regulator, per an analysis by Reuters.

The Takeover Panel sets this deadline to ensure that the company being acquired isn’t “under siege” for too long, while giving the shareholders for the potential buyers enough time to review all relevant materials from the proposal. Per the U.K.’s Takeover Code, that deadline is 46 days after the most recent offer is formally published with the U.K. Stock Exchange.

The reason for Sky to take this to the auction stage would be to maximize the value for its shareholders, hoping the auction-style setting will force Comcast and Fox to drive up their bids.

Currently, Comcast holds the superior bid at $34 billion (£25.9 billion), roughly $2 billion higher than Fox’s offer of $32.5 billion (£24.5 billion). Comcast’s all-cash offer translates to £14.75 a share, which is roughly five percent higher than Fox’s £14 a share bid. Comcast’s offer has been recommended by the Sky Independent Committee of Directors.

However, since Fox already owns 39 percent of the company, it needs only to convince another 12 percent to vote in its favor, whereas Comcast has to convince 51 percent of the board to vote in its favor.

With this headed towards an auction, it begs the question: Why does everyone want Sky so much?

More and more, U.S. companies have been looking internationally for a way to further build scale to compete against the rising tide of deep-pocketed tech companies — like Amazon and Netflix — invading their turf.

Sky’s businesses would grow Comcast’s international revenue from 9 percent of its overall revenue to 25 percent. Sky counts nearly 23 million customers in key parts of Europe, including Germany, Italy and Austria, along with the U.K. and Ireland.

Sky would fit in nicely with Comcast’s other assets, namely NBCUniversal, with its mix of entertainment, sports and news content. In February, Sky extended its rights deal with the English Premier League through 2022, among the world’s most popular (and thus, valuable) sports leagues. That would work well with Comcast, which holds the U.S. TV rights for the British soccer league via NBCUniversal, also through 2022.

Fox’s stake in Sky is part of its $71.3 billion sale of film and TV assets to Disney, meaning that all Fox bids in this auction will be backed by Disney. CEO Bob Iger has previously referred to Sky as the “crown jewel” of Fox assets. Disney could use Sky’s broadband services to launch its upcoming streaming service, which will debut at the end of 2019, in Europe.

Also, there’s a bit of corporate gamesmanship involved. Comcast made its own bid to buy the Fox assets instead of Disney, which forced Disney to increase its offer from its initial $52.4 billion that Fox accepted last year.

You can imagine that Iger would love to return the favor.

21st Century Fox declined to comment for this story, while Sky referred TheWrap to the Takeover Panel’s statement Thursday morning. A representative for Comcast did not return TheWrap’s request for comment.