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Sky’s Fate Will Be Settled Independently of Comcast-Disney’s Fox Battle (Analysis)

U.K. regulators have paved the way for 21st Century Fox to counter Comcast’s bid to buy European satellite TV provider Sky, turning up the heat on the simmering M&A battle between Comcast and Disney over major 21st Century Fox assets.

The jousting among Comcast and Fox during the past few months over Sky has been seen as a warm-up for the larger fight between Comcast and Disney over the bulk of 21st Century Fox’s TV and entertainment assets.

With Tuesday’s regulatory decision in the U.K., Fox now has a clear path to sweetening the $15 billion offer it made in December 2016 to buy out the remaining 61% of Sky that it does not already own. In April, Comcast fielded an all-cash deal for Sky that values the satcaster at about $31 billion. Fox is expected to raise its offer now that it is clear regulators will allow the deal to proceed with some conditions, including the sale of the Sky News operation.

Tuesday’s decision was also good news for Comcast as regulators decided the U.S.-based media giant will not face the stricter regulatory scrutiny that Fox, with all of the Murdoch family’s investments in the U.K. and Europe, has faced during the past 18 months. It’s unclear how much higher Comcast is willing to go, however, if Fox comes back with a significantly higher offer.

The dynamics around the bidding for Sky are complicated by the fact that Comcast is on the verge of launching an all-cash offer to top Disney’s all-stock $52.4 billion bid for most of 21st Century Fox’s assets, including its 39% interest in Sky. Comcast is awaiting the decision, expected on June 12, in the anti-trust trial over the AT&T-Time Warner merger before formally launching its counteroffer for the 21st Century Fox assets. However, all indications from Comcast are that the counteroffer is a go barring a draconian anti-M&A decision from the federal judge overseeing AT&T-Time Warner.

With a big war chest and ambition to grow internationally, Comcast’s run at Sky has been seen as a precursor for the bigger battle to come. But the sale of Sky is a complicated pursuit in and of itself, and the decisions will be made by an independent board of directors that is not likely to be swayed by the macro-level Comcast-Disney battle. What’s more, with the runway cleared for a new bid from Fox, yet another bidder could emerge as it is clear the fate of Sky will be settled one way or another in the coming months.

“The gloves are now off and [it] opens up a fierce bidding war for Sky. This is a great time to be a Sky shareholder,” said Paolo Pescatore, VP of multiplay and media for research firm CCS Insight. “Furthermore, it will open up other opportunities for U.S.-based companies to buy other media assets in the U.K.”

As such, Sky’s board has no incentive to rush into a deal with either Fox or Comcast. The decision confirmed Tuesday by British culture secretary Matt Hancock sets up a 14-day period for Fox to finalize the details of the conditions laid out by regulators to allow it to move forward in revising its bid for Sky. The Sky board has a bird in the hand with Comcast’s richer offer, but knowing that Fox will come back for round two gives them a fiduciary obligation to wait and see how Fox responds.

If Sky opts to take Fox’s offer, the deal would be subject to a fresh round of public comments on a proposed transaction per the protocol of Ofcom, the British media regulatory body. There would not be a public comment period if Sky were to proceed with Comcast.

Comcast could wind up owning Sky before the fate of the larger Fox deal is determined if Sky opts to accept Comcast’s standing offer. But if Sky goes with Fox, Comcast could still ultimately wind up with Sky if the cable giant is successful in landing the larger 21st Century Fox deal. On the flip side, Disney could decide to make its own bid for all Sky. At present, Disney’s acquisition agreement with 21st Century Fox expressly prevents Disney from taking a run on its own for Sky, but those terms could always be revised.

“This is just a skirmish ahead of bigger battles, as Comcast and Disney fight for Sky and, ultimately, Fox itself,” said Adam Thomas, lead analyst for global TV markets at Ovum.

What makes the situation even more dizzying is that the M&A skirmishes among Disney and Fox are driven by the pressure they feel to bulk up to better compete with the growing global clout of tech giants a la Facebook, Apple, Amazon, and Netflix.

“Traditional media companies are increasingly forming themselves into corporate giants, as they seek the scale they need to meet relentless competition from the giant digital platforms,” Thomas said.

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