Publication Date: January 24, 2017
Sky’s Independent Committee recommends that minority shareholders accept a 1,075p bid from Fox, while its financial advisers’ own research analysts had forecasted that Sky will trade at 1,000-1,050p in 12 months, as a standalone company. Has the Independent Committee truly negotiated the best premium for minority shareholders, and has in no way been influenced by Sky’s Chairman, James Murdoch, the current CEO of Fox? Fox’s pending takeover of Sky has been accepted by an Independent Committee that is questionably independent. While the control premium offered is higher than precedent minority buyouts, Sky was pursued at its most vulnerable point, when investors shunned the company due to concerns over slowing organic growth, increasing operating costs, threatening competition from over-the-top, broadband and TV rivals, and underwhelming contribution from the company’s recent investments in Sky Italia and Sky Deutschland. Add to these issues a depressed British Pound resulting from the June 2016 UK Referendum on EU membership and we have what media experts refer to as a “bargain of a lifetime”. At its current terms, the offer is both very accretive for Fox shareholders and, for Fox management, it “helps complete the jigsaw of capabilities”. We believe that investors have sound arguments to complain, that Fox has a strong desire to secure full control, and that only a handful of large investors can call the shareholder vote into question. As such, M&A activism is possible on the notion that Sky minority shareholders deserve a higher offer. In this report, we assess why European antitrust and media plurality aspects can be dealt with comfortably. We believe that the deal will lead to media plurality being maintained since Fox's 2013 spin-off from News Corp separated itself from any newspaper business, thus ensuring a sufficient voice to the UK public. Furthermore, Sky's 2014 acquisitions of Sky Deutschland and Sky Italia have cleaned up the companies and antitrust issues for these acquisitions have already been reviewed and approved by the EC. More importantly, this report evaluates the opportunities and risks for M&A activism and Fox's potential response to this.
1. Strategic Rationale and Media Plurality Evolution 2. Shareholder Vote Analysis and Attendance Level Expectations 3. Opportunities and Risks for M&A Activism 4. Precedent Transactions, Minority Buyouts in Europe 5. Timing Expectations, the Process, Dissecting BSkyB / News Corp 6. Financial Valuation and Break Price Analysis 7. Implied Probability of Completion and the Risk Arbitrage Spread 8. Deal Structure and Other Political Considerations
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