Sky boss Jeremy Darroch is not the sort to indulge in schadenfreude, but he could be forgiven for feeling a little smug this morning. On Friday, the pay-TV giant’s market value soared to £23.6bn, surpassing arch-rival BT for the first time.
Sky investors have the American media mogul Brian Roberts to thank for their good fortune. Last week, the head of cable giant Comcast flew into London with an offer to pay £12.50 a share for Sky — a hefty premium to the £10.75 bid from parent 21st Century Fox.
Until last week, Rupert Murdoch (Fox’s executive co-chairman and chairman of NewsCorp, publisher of The Sunday Times) was expected to fulfil his longstanding ambition of gaining full control of Sky. Yet Roberts’s intervention has thrust a spoke into Fox’s wheel. Sky investors will have to wait several months before they can have their say. Fox hopes to get the green light from the government in June. Comcast, meanwhile, must get clearance from Brussels.
The pressing question for shareholders is whether to cash out now. Sky shares closed at about £13.73 — far above Comcast’s offer — on hopes a bidding war will erupt. Shareholders should resist the temptation to sell, however. Neither Comcast nor Fox can afford to miss out on the satellite broadcaster. Neither can Disney, which has agreed to buy the bulk of Fox’s film and TV interests, including its 39% stake in Sky.
To survive in the world of streaming TV and movies, media companies need greater scale to avoid sinking into irrelevance. Netflix has more than 100m subscribers worldwide. Its vast reach allows it to invest colossal sums in movie and television productions, knowing the cost can be spread over its large user base. This creates a virtuous circle: the more eyeballs, the more it can invest in productions.
Sky would greatly bolster Comcast in its battle against its new digital foes, doubling its subscriber base. Crucially, it would give Comcast a foothold in Europe: Sky is the region’s biggest pay-TV player, with operations in the UK, Germany, Italy, Austria and Ireland.
Fox, meanwhile, won’t want to let Sky slip from its grasp. If its deal with Disney is blocked by US regulators, Fox would be left with a “sub-scale collection of US assets”, according to broker Jefferies.
Also, Disney is desperate to secure a direct route to households for its welter of movie and entertainment channels. Bob Iger, its veteran boss, has called Sky the “jewel in the crown” of the Fox acquisition.
For shareholders, a tasty takeover tussle beckons. They should hold on for the ride.
