Murdoch’s 21st Century Fox to Gobble Sky in £11.7bn Takeover Deal

Second time lucky. Customers of Sky (Sky Broadband) may have mixed feelings when they read today’s news, which confirms that Rupert Murdoch’s 21st Century Fox has agreed to gobble Sky by paying £11.7bn to acquire a 61% stake in the company (Fox already owns 39%).

The move marks the second time that Fox has attempted to gobble Sky, with the first attempt occurring over 6 years ago. Back then Fox’s attempt was derailed by a combination of factors, not least an ample supply of strong political objections, media / news related competition concerns and a rather significant scandal over phone hacking.

However times have changed and today’s Government is keen to promote investment in the United Kingdom post-Brexit, which suggests that the same strong objections may not emerge again. On top of that the phone hacking scandal is long since over and Fox no longer has any UK newspapers on its books. The fall of the pound against the US dollar will also be playing a role.

Today’s deal appears to value Sky at around £18.5bn and as a result shareholders are likely to receive £10.75 (cash) per share, which is broadly the same deal as Fox first proposed last week. The deal also includes Sky’s Pay TV and related divisions in Ireland, Germany and Italy.

A Spokesperson for 21st Century Fox said:

“As the founding shareholder of Sky, we are proud to have participated in its growth and development. The strategic rationale for this combination is clear. It creates a global leader in content creation and distribution, enhances our sports and entertainment scale, and gives us unique and leading direct-to-consumer capabilities and technologies. It adds the strength of the Sky brand to our portfolio, including the Fox, National Geographic and Star brands.

Sky is a creative, commercial, and consumer powerhouse delivering its own content to customers across all platforms. Sky is the #1 PayTV brand in all its key markets, with an exciting growth runway in each. The enhanced capabilities of the combined company will be underpinned by a more geographically diverse and stable revenue base. It will also create an improved balance between subscription, affiliate fee, advertising and content revenues. This combination creates an agile organization that is equipped to better succeed in a global market.”

According to the official notice, 21st Century Fox anticipates that the acquisition will complete “before the end of 2017“. Under the terms of the Acquisition, if the Effective Date has not occurred on or before 31st December 2017 then Sky’s shareholders shall be entitled to receive a special dividend of 10p per Sky share, payable in 2018. Sky will not pay any dividends in 2017.

The independent committee of Sky currently intends to “recommend unanimously” that unaffiliated Sky shareholders vote in favour of the deal. Apparently the money for all this is coming from a Bridge Credit Agreement between Fox, Goldman Sachs Bank USA, Deutsche Bank Securities Inc. and JPMorgan Chase Bank (this provides for borrowings of up to £12.2 billion).

The Government’s Culture Secretary, Karen Bradley MP, will now have 10 working days to decide whether or not the deal raises public interest concerns and it’s likely that she will ask the communications regulator, Ofcom, to probe the proposed takeover. As if Ofcom doesn’t have enough on its plate right now.