Coverage: Murdoch wants to expand his media empire

Rupert Murdoch’s Twenty-First Century Fox has offered $14.6 billion to purchase the rest of British-based pay television company Sky that he doesn’t already own in a bid to take on rivals such as Netflix for viewers.

Kate Holton and Paul Sandle of Reuters have the news:

Fox said it would pay 10.75 pounds per share – or 11.7 billion pounds – for the 61 percent of Sky it does not already own to control a business with 22 million customers in Britain, Ireland, Italy, Germany and Austria.

People familiar with the matter told Reuters the American media corporation pounced after Britain’s vote to leave the European Union in June sent the pound down about 15 percent against the U.S. dollar and Sky’s share price tumbling.

The Murdoch family have never wavered in their ambition to take full control of Sky, despite the damaging failure of a previous attempt five years ago when their British newspaper business became embroiled in a phone-hacking scandal.

The agreement comes just over a week after Fox first approached Sky and follows several days of haggling in London which resulted in Fox lifting its offer three times to secure the backing of Sky’s independent directors, according to two people familiar with the situation. The deal values all of the company at 18.5 billion pounds.

Mike Snider of USA Today notes it would be Fox’s largest acquisition ever:

Fox’s acquisition of Sky, which also creates its own programming and has a library of sports broadcasting rights, strengthens the media giant in a time of telecom and content consolidation.

Other media mega-mergers include AT&T’s $85.4 billion bid for Time Warner, which would marry the provider of wireless connectivity and pay-TV including DirecTV with the Hollywood studio and channels such as CNN, HBO and TNT, and Verizon’s acquisition of Net media company Yahoo. However, that deal faces continuing scrutiny with the news of a second massive data breach at Yahoo.

In addition to producing its own original programs, Sky delivers top U.S. shows such as HBO’s Game of Thrones to U.K. and European pay-TV customers. It also broadcasts Premier League soccer games, the rights to which are auctioned off every three years. Sky is also rolling out its Net TV service and is about to launch a mobile TV service that gives Fox “operating control of a pan-European direct-to-consumer platform to challenge Netflix,” said analyst Michael Nathanson of MoffettNathanson Research in a note to analysts earlier this week.

“All in all, even taking into account the sports cost issue, this is probably a better and more durable business than most US. investors would presume,” said Nathanson, who lowered its rating on Fox shares to Neutral from Buy and increased the target price $2 to $32.

Rebecca Penny and Eric Pfanner of Bloomberg report that the deal takes advantage of a weak pound valuation:

For the Murdochs, the timing of the deal is right: Momentum behind U.S. stocks continues to build as traders bet that President-elect Donald Trump will follow through on promises to cut regulations and reduce taxes, helping to drive earnings growth. In the U.K., the pound weakened against the dollar after the Brexit vote, which makes the acquisition cheaper for New York-based Fox.

The latest talks between the two companies began in early December, when Fox Chief Executive Officer and Sky Chairman James Murdoch invited Sky Deputy Chairman Martin Gilbert to Fox’s headquarters in New York, a person with direct knowledge of the situation said. The meeting took place on Dec. 7, with Rupert, James and Lachlan Murdoch present at James’s office, said the person, who asked not to be identified because the gathering wasn’t public.

The Fox executives outlined three options, saying they could sell their existing Sky stake, make a bid for the entire company or reach an agreement with Sky’s board on a recommended offer, and they made clear they preferred the third choice, the person said.

The Fox executives initially suggested an offer about 30 percent above Sky’s trading price, and later settled on the higher premium that was disclosed last week, the person said. Additional sweeteners were added a day before Thursday’s final announcement, the person said. These include a 200 million-pound breakup fee and a 10-pence special dividend that Sky shareholders will receive if the deal isn’t completed by Dec. 31, 2017.