Market Insight

Comcast drops its bid for Fox to focus on Sky

July 20, 2018

Tim Westcott Tim Westcott Director, Research and Analysis, Programming

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US cable group Comcast says it will not pursue its acquisition of 21st Century Fox assets and will instead concentrate on its bid for the UK-based pay TV platform, Sky.

Yesterday's announcement by Comcast leaves the field clear for Walt Disney Company to complete its purchase of the Fox film and TV studios, cable networks (except for the US based news, business and sports networks) and a stake in Hulu, originally agreed in December last year. The challenge from Comcast forced Disney to raise its offer for the Fox assets to $71 billion, days after Comcast increased its offer for Fox to $65 billion. Also last month, the US Department of Justice cleared the deal on condition that Fox regional sports networks are sold off. 

Comcast's latest offer for Sky is £14.75 a share, valuing the pay TV group at £26 billion ($34 billion), compared to the latest offer from Fox for the 61% of Sky that it does not own of £14 per share. Fox originally agreed a price of £10.75 to buy full control of Sky in December 2016. The UK government finally gave its approval to the Fox deal this month in response to undertakings from Fox and Disney over the funding and editorial independence of Sky News.

Our analysis

In one sense, Comcast's decision to drop its bid for Fox does not change the outcome for Sky: it will end up under new ownership, by either the Walt Disney Co or Comcast. This outcome will hinge on what deal Sky's shareholders (the most important of which is the Murdoch family) think it best for them. With Sky's closing share price in London at £15.08 last night, and having hit a high of £15.51 over the last year, the bidding war appears to have much further to go unless either side drops out.

The other, more strategic question, is where the Sky business would fit best. As IHS Markit  commented in February, it seems to be most complementary with Comcast, as it is primarily in the platform business and would swell the US company's international revenues at a stroke, It could even be speculated that Comcast is hoping that Walt Disney Co will come to the same conclusion. Disney's ambitions to launch a direct-to-consumer subscription platform next year will be boosted by the Fox back catalogue of movies and TV series, while cable networks like Nat Geo and FX will complement the channels in the Disney portfolio.

However, as we noted before, Disney has already moved into the platform business with the launch of ESPN+ this year and will now also be the majority owner of Hulu, so that owning Sky (as well as the Indian Star business) would in fact be consistent with overall strategy. It would also be in line with the rationale behind AT&T's takeover of Time Warner, which was completed last month. 

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