July 27, 2018

Breakingviews: Disney Taking the Mickey

by Breakingviews.

Sky shareholders may be unduly worried about a truce. Shares in the pay-TV group are down 2 percent since suitor Comcast last week said it wouldn’t challenge Walt Disney’s bid for most of Twenty-First Century Fox. Yet the Mickey Mouse owner could still prove a nuisance to Comcast in the battle for Sky, to investors’ gain.

Sky’s falling share price suggests investors think that Comcast’s defeat will also defuse the battle for the UK group. After losing out to Disney’s $71 billion bid for Fox assets, including its 39 percent Sky stake, Comcast boss Brian Roberts said he’ll instead focus on buying Sky, for which he is competing with Fox. For Roberts to get full control, he will need Fox to sell its stake. That might suit Disney, as it would help fund the larger deal.

But a truce may not be in Disney’s interest. Boss Bob Iger called Sky the “crown jewel” of Rupert Murdoch’s Fox empire. That’s because he could use its technology and streaming service to channel Disney’s TV shows and movies directly to consumers. Sky, which reaches 120 million people, is the only way Disney can gain scale in Europe.

Iger has already shown he is happy to pay up. When Fox raised its offer to 14 pounds per share, Disney agreed to reimburse the difference above 13 pounds in case the wider tie-up fails. Stretching to 15 pounds per share, enough to trump Comcast’s latest offer, would cost an extra $1.4 billion – small in the context of the bigger Fox deal.

Iger and Murdoch have an advantage over Roberts. Disney’s acquisition of Fox assets includes the 39 percent stake in Sky, so the cost of a raise would only apply to the 61 percent it doesn’t own. That means any price increase does more damage to Comcast than Disney. And Iger has little reason to let Comcast win easily, since Roberts has plenty of firepower that’s now concentrated only on Sky.

Investors are not betting on a big raise. Sky’s share price is 15.08 pounds, just 2 percent above Comcast’s latest offer. Second-guessing Iger is risky. He might just let Comcast buy out other Sky investors, and then hold out for a better price. Still, there’s a good chance that Sky’s takeover war gets even more heated.


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