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What the Sky Auction Could Mean for Comcast

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Sep. 13 2018, Updated 7:30 a.m. ET

Comcast and Fox in bidding war for Sky

Although Comcast (CMCSA) and 21st Century Fox (FOX) have ironed out their differences over the Big Ten Network carriage issue, the competition between the two is not yet over. The two companies are still in the race to buy British broadcaster Sky, and the deadline to clinch the deal is fast approaching.

Comcast is seeking to buy Sky for $34.0 billion, meaning its bid values the broadcaster at 14.75 pounds per share. Fox already owns 39.0% of Sky and is seeking to take full ownership of the business by acquiring the 61.0% stake it doesn’t already own. Fox is seeking to buy the remaining stake in Sky for 14.00 pounds per share, meaning its bid values Sky at ~$32.5 billion.

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Risk of overpaying for Sky

Comcast and Fox have until September 22 to increase their bids. If none of the bids wins by September 22, then the British takeover regulator, the Panel on Takeovers and Mergers, is empowered to start an auction for Sky. That scenario may involve companies submitting revised bids and more bidders joining the race to acquire Sky.

Triggering an auction is a rare move by the regulator, but an auction sometimes becomes necessary to bring to an orderly end to a protracted bidding war. The challenge for the bidders is that the winning bidder may end up overpaying for the targeted asset or company, which may make it difficult to justify a deal to shareholders.

Sky grew fiscal 2018 revenues by 5%

Comcast, which had $5.8 billion in cash at the end of the June quarter, intends to fund its Sky bid with cash. Fox had $7.6 billion in cash, and Disney (DIS) had $4.3 billion cash in that period. Viacom (VIAB) and Charter Communications (CHTR) exited the June quarter with cash balances of $929.0 million and $773.0 million, respectively.

Sky, the company Comcast and Fox are battling over, serves ~23.0 million pay-TV customers in several European markets. Its revenues increased 5.0% to $17.4 billion in the fiscal year ended June 30.

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