Comcast Overpays for Sky
We believe Comcast will struggle to generate a decent return on its investment.
The bidding war for Sky is nearing an end. With neither Comcast (CMCSA) or Fox (FOX) making an offer labeled as final, the U.K. Takeover Panel exercised its rights to take the bidding to a final auction. The auction was held on Saturday Sept. 22, with Comcast bidding GBX 1728 per share, 10% more than Fox’s GBX 1567 offer. Both offers were significantly higher than their previous bids of GBX 1476 and GBX 1400, respectively. The offers are great for Sky shareholders, but we believe Comcast will struggle to generate a decent return on its investment, as we already thought the previous offers exceeded Sky’s fair value.
Comcast’s higher bid adds GBP 4.4 billion ($5.7 billion) to the purchase price versus its previous offer, taking its total bid to GBP 30.6 billion ($40.0 billion). This additional payment is only 3.3% of Comcast’s market capitalization. Further, if we assume Comcast overpaid by 40% for Sky’s equity, the shareholder value lost would equal about $2.50 per share. So, while we think Comcast got carried away in the bidding it won’t be too detrimental to our Comcast fair value estimate. We’re also maintaining our wide moat rating on the firm. On the other hand, we are increasing our fair value estimate for Sky to Comcast’s offer price of GBX 1728 and are maintaining its narrow moat rating.
Sky shareholders now have until Oct. 11 to vote for either offer. However, with Comcast’s offer more than 10% higher than Fox’s, we expect Comcast’s offer will win the day despite Fox already owning 39% of Sky’s shares. With this high of an offer and knowing it will lose control anyway, Fox and Disney may choose to tender the Fox-owned shares, which Disney will soon take over. Once the vote is complete, we expect the deal to quickly close. While extremely unlikely, in our view, if fewer than 50% of Sky shareholders (about 82% of non-Fox shareholders) tender, the deal could still fall apart, which would likely push the stock price below our standalone fair value estimate of GBX 1260.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Allan C. Nichols does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.