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LONDON – The same type of blind auction used to pick players in fantastic football leagues could decide the fate of
Sky
PLC, a media company employing 30,000 people, has a market value of $ 36 billion.
The blind auction strategy is complex, with each party trying to determine the amount to be paid to win while avoiding excessive spending. It has fostered a cottage industry of auction consultants, many of whom hold a doctorate in game theory, a branch of mathematics that examines how players in strategic contests make decisions. While investment bankers are used to such auctions, it is unusual to have a "sealed bid" process imposed by the government on such a large publicly traded company.
"Game theory as a subject is well understood by academics and has long been studied, but game theorists who also understand the market context are not so common," said Steve Blythe, who oversees sales to auction
Orange
HER
.
Complicating things in the Sky auction: Fox already owns 39% of the London-based company, and Disney agreed earlier this year to buy much of Fox, including his Sky stake.
Sold!
Comcast, Disney and Fox head to the auction table on Friday to bid on Sky.
Here's how the auction is supposed to unfold
Both parties submit secret offers
"As soon as possible" UK regulators to unveil winning bid on Saturday
This arrangement puts Disney and Fox on the same side of the table, but Disney calls the shots. This also encourages Disney to maximize bids, even if it does not prevail. A higher price would allow Disney to offload its participation in Sky, although it does not have to sell.
Fox, Comcast and Sky declined to comment on the auction. Disney did not respond to requests for comment. Rupert Murdoch and his family are the main shareholders of Fox and
News Corp
,
who publishes the Wall Street Journal.
Mr. Murdoch has long sought to consolidate his participation in Sky. Disney and Comcast see Sky as a way to grow internationally. The broadcaster also sells wireless, television and Internet services throughout Europe, and this media company produces its own information, entertainment and sports programs.
Both parties accepted the conditions of the auction. The UK Takeover Panel, the agency in charge of the auction, handles large transactions involving British companies. He has the power to force an official bid to prevent an endless series of bids and counter-offers, and has perfected the process with companies.
According to the auction rules, only Fox can bid in the first round because Comcast enters the treatment after making a superior bid. In the second round, Comcast can counterbalance. If this does not determine a winner, each team may submit sealed bids in the third and final round.
Maher Said, a professor at New York University's Stern School of Business who focuses on auctions, said the first step in such a sale is to determine what it really is worth for your rival . Then you launch a series of possible offers from your rival.
"The problem is that you do not want to raise the price so high and end up holding the bag," he said.
Fox originally offered £ 10.75 per share to Sky in December 2016. Comcast's current offering in July is £ 14.75 per share, already 37% more than Fox's first offer .
Blind auctions are more common in other industries. For example, wireless service providers often hire outside game theory advisors when they bid for cellular rights, which governments around the world typically sell at auction.
All wireless auctions are not blind, but those that tend to be the most difficult to prepare, said Mr. Blythe of Orange.
"It's hard to convince your boss that you've done a good job," he said. Here is the dilemma: to bid too low and lose. Offer too high and risk of spending much more than necessary.
For example, suppose you bid for a house. Your $ 450,000 offer is winning. But then you learn that the second highest bid was $ 300,000. Would you really feel like a winner?
Mr. Blythe's goal is to win cellular air waves at a price that Orange would benefit from. Failing that, his goal is to make his rivals spend as much as possible, he said. With millions or billions of dollars at stake, wireless operators are hiring the few high-level game theorists with experience.
The tricky part is that buyers can value assets differently. Consider fantasy-football leagues. Many of these online games give each player a budget to bid on free agents during the season. This week, many players make an offer for Atlanta Falcons midfielder Tevin Coleman, a second-line player now coveted after Devonta Freeman left.
"If you're looking for a replacement, you're going to make an offer for Tevin Coleman," said Adam Hoffer, professor of economics at the University of Wisconsin in La Crosse. "But you know that the person who owns Devonta Freeman is going to make a high bid," too.
Write to Stu Woo at [email protected] and Ben Dummett at [email protected]
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