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Analysts explore impact of Sky/Comcast deal

European pay TV operator Sky has recommended the £30.6bn (US$39bn) takeover bid from Comcast Corporation to its shareholders, as the impact of the deal begin to emerge.

Philadelphia-based Comcast bid £17.28 a share for control of London-based Sky in a blind auction on Saturday, offering around US$3.6bn more than Rupert Murdoch’s 21st Century Fox, which offered only £15.67 per share.

Sky’s independent directors have said it would be “in the best interests of all Sky shareholders to accept the Comcast offer,” as the pay TV company’s shares soared more than 8% to that of the US cabler’s offer price. Shareholders have until October 11 to accept the deal.

“With the independent directors of Sky backing the deal and the premium to the share price close on Friday, it is almost inevitable that non-Fox shareholders will take the offer,” said Ian Whittaker, analyst at investment house Librium.

Paolo Pescatore

Attention is now turning to the effects of the deal, with cost-cutting predicted by analysts and the future of US streamer Hulu also likely to be affected. Media analyst Paolo Pescatore said a Comcast-backed Sky would be a “considerable force” in Europe where there “are significant growth opportunities.”

“Sky and its customers will benefit from being part of the wider group, access to more services, products and features, financial security to some extent to bid for key costly premium content rights — in particular sports, which is arguably the company’s prized asset with the Premier League.”

However, he cautioned that “some cost-cutting measures” are now likely as Comcast looks to complete the deal and integrate Sky “with minimal impact on the business.”

Comcast has previously estimated that the Sky deal could result in US$500m savings, with Sky shows airing via its networks such as NBC and US programming airing across Europe.

Attention has also turned to Hulu, which is currently owned by Comcast, Disney and Fox – each owning 30% – and AT&T, which holds a 10% stake after buying Time Warner.

Disney’s agreement with Fox will see it owning a combined 60% stake in the US streamer, while Comcast is now willing to sell its 30% stake, according to sources at CNBC.

It is also unclear what Fox will do with its 39% stake in Sky, which is due to be bought by Disney as part of its wider deal with Murdoch’s entertainment business. That stake is now worth just under £12bn following Comcast’s super-sized bid.

Whitaker said he believed Fox/Disney “will sell its stake in the company – it is a windfall for Fox and, for Disney, there is no direct competition in Europe between it and Comcast in the pay TV arena.”

Laith Khalaf, an analyst at investment outfit Hargreaves Lansdown, said Fox had been “comprehensively outgunned” in the battle for Sky but added “it remains to be seen” what Disney does with its 39% holding.

Fox said it was “considering its options regarding its own 39% shareholding in Sky and will make a further announcement in due course.”

Comcast’s knock-out offer brought to an end a dramatic bidding war between the two US giants for Sky, after Fox initially made a £10.75-per-share offer in December 2016.

While Disney was in the process of acquiring an array of assets from Fox, including 39% of Sky, it had initially looked set to take over the 61% of Sky that Fox does not already own.

Then NBCUniversal-owner Comcast stepped in and began successively topping Fox’s offers. In July, Fox increased its offer to £24.5bn but this was topped by a £26bn bid from Comcast. The bidding war between Disney-backed Fox and Comcast added at least US$8bn to the Sky price tag and hands Comcast a sizeable European pay TV business with 23 million subscribers.

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