Consolidation is key to US media in the face of online streaming competition; what does the battle mean for investors?
Pay TV business Sky was one of the best performers in the FTSE 100 index of blue-chip companies in June, gaining 8.5 per cent as the result of a bidding war for the company between Rupert Murdoch’s 21st Century Fox and US cable company Comcast.
That bidding war has now escalated once more. Following Fox’s most recent offer to purchase Sky at £14 per share, Comcast has hit back with an even higher offer of £14.75.
The bidding war initially started in February when Comcast unexpectedly placed a bid for Sky while Fox was tied up waiting for regulatory approval of the purchase.
Fox had originally agreed to buy Sky in December 2016 for just £10.75 per share. Comcast’s latest bid is almost 40 per cent above that.
The biggest winners of the war have been Sky News investors, with the broadcaster’s share price up by almost 50 per cent from the start of the year.
Comcast’s latest rapid-fire offer further shows the determination of the company to buy Sky. As Ian Forrest, investment research analyst at The Share Centre, says: ‘The speed with which Comcast has responded to Fox’s bid speaks volumes about the determination of Comcast, led by Brian Roberts, to win the day.’
Markets appear bullish, with the expectation being that prices will continue to head north as both firms appear set to put forward further counter-offers. As Forrest notes: ‘the market seems confident that the battle has further to go as the share price is now at £15.20, well above the latest Comcast offer.’
However, with prices now so elevated, how much further can they go?
Both firms want increased international exposure and are acutely aware of their vulnerability to market disrupters providing online streaming services; acquisitions are seen as key to their survival.
Just as UK (and European) supermarkets are consolidating in the face of the threat from Amazon’s move into groceries, legacy US media companies are attempting to consolidate to fend off the likes of Amazon and Netflix.
And, as Forrest notes, both companies have ‘deep pockets.’
For investors in Sky with a higher risk tolerance, there is the potential to hold out as the bidding war continues to escalate. However, notes Forrest, ‘we still believe that lower-risk investors may want to lock in recent gains.’