Typically, an increased offer for a company would result in a healthy advance for the share price. However, pay-TV broadcaster Sky (SKY) is lower this morning on a sweetened £24.5bn offer from Rupert Murdoch’s 21st Century Fox.

This bid is worth £14.00 per share – and even after falling 0.7%, Sky shares are materially above that level at £14.90.

As AJ Bell investment director Russ Mould observes: ‘Sky investors clearly 'Believe in Better' as they think a higher offer is coming from Comcast, judging by how the share price is trading well above Fox's upgraded bid of £14. The takeover saga is far from over.’

The protracted bid saga around Sky, Fox first bid for the company in December 2016, reflects regulatory issues and a wider power play among three US media giants. Fox, Comcast and Disney.

Fox currently owns 39% of Sky and was looking to acquire the remaining 61% stake for £10.75 per share when Disney agreed a takeover of its media assets.

Comcast then launched its own higher offer for Sky at £12.50. Both deals were recently given the regulatory green light.

In June US media conglomerate Comcast launched a $65bn rival bid to Disney for Fox’s entertainment arm. Disney responded with its own higher $71.3bn offer for the Fox assets.

WHAT HAPPENS NEXT?

Shore Capital analyst Roddy Davidson says: ‘We believe this offer substantially overvalues Sky based on its underlying growth potential and the fact that its faces a number of significant challenges going forward including a significant increase in its competitive environment, pricing pressure, sports rights inflation and the growing obsolescence of its satellite delivery platform.’

Davidson reckons Comcast may focus on gaining ownership of Sky through an eventual takeover of Fox’s media assets.

‘Either way we regard this as a fantastic exit value for Sky shareholders and suggest they at least hedge their bets by taking some money of the table at these levels,’ Davidson says.

‘We also see an excellent opportunity to switch into ITV (ITV) which we believe has significant strategic value in this consolidation space and is currently trading on a substantially lower valuation.’


Issue Date: 11 Jul 2018