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Sky Shares Dip as Investors Contemplate Potential End of the Bidding War

Sky’s share price fell 2% on Thursday on the heels of Comcast’s announcement that it was abandoning its bid for 21st Century Fox assets to focus on acquiring Sky. The drop in share price was seen as a sign of investor concern that the bidding war for Europe’s pay-TV leader could be over.

Fox has until Aug. 8 to counter Comcast’s £14.75 per-share offer, which values Sky at £34 billion. Even after Thursday’s slip in price, Sky was still trading above £15.

Any improved offer by Fox would need to be sanctioned by Disney, which is on track to buy Fox’s major entertainment assets and which must decide how important Sky is to its plans. Disney’s larger play is to add Fox content to its own in preparation for a major direct-to-consumer push to rival the likes of Netflix.

“Given what we know about Disney’s strategy and direct-to-consumer plans, Sky is not crucial for them, although it does have a nascent SVOD service that could be leveraged,” said Guy Bisson, research director at London-based Ampere Analysis.

Analysts in London viewed Comcast’s announcement as a message to Disney: Either you take Fox and let us nab Sky, or, “if you want to increase your offer [for Sky], now [that] we have dropped our pursuit of Fox, we have more firepower,” said Ian Whittaker, head of European media research at Liberum Capital.

Complicating a deal that already has multiple moving parts is a further review, announced Wednesday, by the U.K. Takeover Panel, which regulates takeovers in Britain. If Disney’s $71.3 billion deal for Fox assets – including Fox’s current 39% stake in Sky – closes before a separate deal for the pay-TV giant, the Mouse will be obliged to make an offer to Sky’s independent shareholders for the remainder of the company under the so-called “chain principle.”

As the price of Fox assets rose during Disney and Comcast’s bidding war, those independent Sky shareholders lobbied the Takeover Panel to set a higher price for their own stock if the chain principle kicks in. The floor price per share was raised accordingly to £14. But the panel said this week that it will look at the floor price yet again, in light of Disney’s most recent offer for Fox.

The panel’s review board meets July 27 – the same day Fox shareholders will vote on Disney’s latest bid. If the Takeover Panel ups the floor price further, that could potentially add a hefty chunk to a Disney deal for Fox.

Some analysts say that Sky is a better fit, and more strategically important, to Comcast. For the U.S. cable company, acquiring Sky would increase its international footprint at a stroke, in a traditional pay-TV world it knows inside out. “It’s their bread and butter in the U.S. and offers a relatively predictable and stable business for the foreseeable future,” Bisson said.

Comcast would also likely look at the possibility of an international streaming service, albeit in a more measured way than Disney, he added. “It would probably be at a slower pace to Disney and on a more traditional business model, where content is acquired for multiple territories, rather than the Disney model of owning all of the [programming],” Bisson said.

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