MADRID (Reuters Breakingviews) - Sky’s shareholders can’t fly much higher. Some of the UK pay-TV group’s investors are grumbling that independent directors gave in too quickly to an opportunistic bid from Rupert Murdoch’s Twenty-First Century Fox. But the market had previously given Sky the thumbs-down, and the premium looks generous. A small sweetener is the best investors can hope for.
The 85-year-old mogul’s 11 billion pound offer for the 61 percent of the group Fox doesn’t already own looks cannily timed. Before news of the bid was made public, Sky’s shares had lost about 30 percent since the start of the year. In U.S. dollar terms they were 40 percent cheaper.
Comparative valuations are tricky because Sky is Britain’s only quoted pay-TV firm, and it competes with telecom operator BT for sports rights. Even so, Sky didn’t look obviously neglected. Judged on a multiple of forward earnings, it was trading at a similar premium to BT and UK broadcaster ITV as in early 2015 – though it had lost some altitude since Britain’s referendum on EU membership in June.
It’s also hard to argue that investors lacked a clear picture. Sky had outlined its growth plans at a capital markets day in October. Despite the company’s flashy presentation, the shares continued to slide as investors fretted over the escalating costs of acquiring sports rights and the threat of online TV and movie services like Amazon and Netflix.
The premium also looks generous at 40 percent to the share price on Dec. 6, the last business day before Fox made its offer to Sky’s board. The average UK takeover commanded a 27 percent premium last year, and 35 percent this year so far, according to Thomson Reuters data. Takeovers like Sky where the buyer is also the largest shareholder tend to have smaller markups, due to the lack of competing bidders.
Besides, Sky’s independent directors didn’t exactly roll over. They extracted a higher offer from Fox, which had initially proposed a lower price, according to a person familiar with the situation. And there are still issues to be negotiated which could affect the value, including how to share the risk of completion. Sky’s directors might be able to nudge Fox a bit more, but investors expecting a large bump will probably be disappointed.
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