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Controlling a $ 30 billion business is not often an auction. But this is the fate of British broadcaster Sky, one of Europe's most valuable TV companies.
To determine control, a showdown between Comcast and 21st Century Fox (under the auspices of its future owner, the Walt Disney Company) should begin Friday night. The next day, Comcast and Fox will compete for Sky. The winner of the auction will be announced Saturday night in London, pending no major changes to the process.
How did we get here?
Rupert Murdoch had long sought to acquire the 61% of Sky that Fox (and, earlier, News Corporation) did not possess. Its last redemption effort began at the end of 2016.
Then, in December, 21st Century Fox signed a $ 52.4 billion deal to sell most of its assets to Disney, including its 39% stake in Sky.
In June, Comcast made a $ 65 billion bid for Fox's businesses. The spoiler auction forced Disney to increase its $ 19 billion offering, adding to Disney's debt.
Disney has prevailed but has not taken control of Sky, which Robert A. Iger, the head of Disney, had described as "true jewel of the crown."
How will the auction work?
Fox offered 14 pounds per share, about $ 32.5 billion. Comcast fought back with £ 14.75 per share, or $ 34 billion. But none of these offers was considered the best and final, which prompted the UK Takeover Board to force both parties into the auction.
Sky's shares traded above £ 15, well above the £ 10 mark early in the year, in anticipation of even higher targets.
Here are some possible results:
Comcast wins with an offer of £ 14.75
Round 1: Fox-Disney goes first because he currently has the lowest bid. He could keep his bid at £ 14, which would be a calculated move to force Comcast to run.
Round 2: The Comcast Round. The auctions are blind, so Comcast will not know if Fox-Disney has lifted its bid or not. If Comcast realizes that he would sell against himself, he could leave his bid at £ 14.75.
No round 3. Comcast wins.
One side wins with a higher bid by the second round
Round 1: Fox-Disney raises its bid above £ 14.
Round 2: Comcast increases its offer and the two offers are not equal.
No round 3. The highest bid wins.
A team wins with a higher third round bid
Round 1: Fox-Disney launches its offer.
2nd round: The Comcast offer corresponds to the Fox-Disney Round 1 offer.
Round 3: Both parties have submitted their best and last offer, and the highest bid wins.
Fox-Disney wins with an offer equal to that of Comcast
Round 1: Fox-Disney offers.
Round 2: Comcast's offer corresponds to the Fox-Disney Round 1 offer.
Round 3: Here's where a twist could add a complication. Both parties may make their final offer conditional on both parties bidding.
In other words, if Comcast submits its Series 3 bid at a Fox-Disney auction and Fox-Disney does not bid, the Comcast bid is void. In this case, there is no third round and we are back to round 2 with equal offers.
In this case, the case would be forwarded to independent directors of Sky, who would evaluate each offer based on the probability of completion of the transaction. This means that one must determine how many additional actions each party must buy to take control.
Fox-Disney has a head start because it already has 39%. Based on its most recent offer, the company plans to raise 75% of the company, which means it only has to buy 36% of the control.
But Fox-Disney could lower that threshold to 51% at any time, which means it should only buy 12% of the outstanding shares. That would appeal to Sky's board. In this narrow result, Disney could actually get control of Sky relatively cheaply.
For Comcast, he must have 50% plus one share for control, which gives him a higher threshold to meet.
In that case, Fox-Disney wins.
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