On December 15th , 2016 Twenty-First Century Fox announced it has reached an agreement to take full control of Sky, by purchasing the remaining 61% stake it did not already own. Sky has agreed on a £10.75 per share all-cash offer which values the British company at a 36% premium to its closing price of December 8. In other words, 21st Century Fox values the UK-based group approximately £18.5 billion. The transaction is expected to be completed by the end of 2017 and if this was not the case, Sky said that it would to pay a 10p dividend.
21st Century Fox is the fourth largest media company in the world, after Comcast, Disney and Time Warner. It generated $27 billion in revenues during 2016 and has a broad global portfolio of cable and broadcasting networks such as Fox news, Fox sports or National Geographic. Needless to say, it also owns the film studio Twentieth Century Fox Films.
Sky is Europe’s leading entertainment company serving 22 million customers across the UK, Ireland, Germany, Austria and Italy. It is a vertically integrated media and communication leader offering television, broadband and voice services as well as content such as news, movies and Premier League games.
The strategic rationale of this deal is rather straight forward. This, would create a vertically integrated global leader in content and deep consumer experience. The deal enhances Fox’s presence in global sports and entertainment. The combined entity will bring a more diversified and stable revenue base. For instance, Fox currently generates 71% of its revenues in North America. With the acquisition of the British company, the share of revenues from the same geographical area will decrease to 46% and the share of the European region will increase from 12% to 44%. This deal helps to diversify away from the US television business and get an increasing exposure to the European market.
The financial rational is extremely important as well. This transaction will increase both Earnings per Share and Free Cash Flows. The media industry has entered a new era of consolidation triggered by changes in both the audience’s viewing habits and distribution technologies. Similarly to the AT&T-Time Warner deal, this transaction would bring together a content producer with a distributor with access to satellite and broadband. An official statement from Fox, the American company said that “the move would bring together its global content business with Sky’s “direct to consumer capabilities”.
Regulatory approval is still pending but James Murdoch, the CEO and chairman of 21st Century Fox is confident the deal will be approved by the relevant regulatory authorities and completed by the end of 2017.
Fox will finance this deal with cash, as well as $10 million in debt. As a result, this would bring the ratio of debt to adjusted earnings well above the group’s target but John Nallen, the CFO, said that the “increased free cash flow from the combined entity will result in rapid deleveraging back to our target below three times”.
This is not the first time that Fox attempted to take further control of Sky. In 2011, the deal failed after the phone-hacking scandal. At that time, the American company had to pay a £38.5 million break-up fee. This time, the break-up fee is £200 million, more than 5 times as much.
Fox has been advised by Deutsche Bank and Centerview. On the other side, Morgan Stanley, PJT Partners and Barclays have advised Sky.
Riccardo Lizzi
21st Century Fox is the fourth largest media company in the world, after Comcast, Disney and Time Warner. It generated $27 billion in revenues during 2016 and has a broad global portfolio of cable and broadcasting networks such as Fox news, Fox sports or National Geographic. Needless to say, it also owns the film studio Twentieth Century Fox Films.
Sky is Europe’s leading entertainment company serving 22 million customers across the UK, Ireland, Germany, Austria and Italy. It is a vertically integrated media and communication leader offering television, broadband and voice services as well as content such as news, movies and Premier League games.
The strategic rationale of this deal is rather straight forward. This, would create a vertically integrated global leader in content and deep consumer experience. The deal enhances Fox’s presence in global sports and entertainment. The combined entity will bring a more diversified and stable revenue base. For instance, Fox currently generates 71% of its revenues in North America. With the acquisition of the British company, the share of revenues from the same geographical area will decrease to 46% and the share of the European region will increase from 12% to 44%. This deal helps to diversify away from the US television business and get an increasing exposure to the European market.
The financial rational is extremely important as well. This transaction will increase both Earnings per Share and Free Cash Flows. The media industry has entered a new era of consolidation triggered by changes in both the audience’s viewing habits and distribution technologies. Similarly to the AT&T-Time Warner deal, this transaction would bring together a content producer with a distributor with access to satellite and broadband. An official statement from Fox, the American company said that “the move would bring together its global content business with Sky’s “direct to consumer capabilities”.
Regulatory approval is still pending but James Murdoch, the CEO and chairman of 21st Century Fox is confident the deal will be approved by the relevant regulatory authorities and completed by the end of 2017.
Fox will finance this deal with cash, as well as $10 million in debt. As a result, this would bring the ratio of debt to adjusted earnings well above the group’s target but John Nallen, the CFO, said that the “increased free cash flow from the combined entity will result in rapid deleveraging back to our target below three times”.
This is not the first time that Fox attempted to take further control of Sky. In 2011, the deal failed after the phone-hacking scandal. At that time, the American company had to pay a £38.5 million break-up fee. This time, the break-up fee is £200 million, more than 5 times as much.
Fox has been advised by Deutsche Bank and Centerview. On the other side, Morgan Stanley, PJT Partners and Barclays have advised Sky.
Riccardo Lizzi