Deals and IPOs

Rupert Murdoch's Twenty-First Century Fox announces firm offer for broadcaster Sky

Simon Dawson | Bloomberg | CNBC

Rupert Murdoch's Twenty-First Century Fox took a second stab at a full takeover of Sky on Thursday, in an all-cash deal that values the European pay-TV broadcaster at £18.5 billion ($23.4 billion).

The U.S. mass media corporation is offering £10.75 per share for the slice of Sky which it does not currently own, which equates to a 36 percent premium to the U.K. company's undisturbed share price as of December 8. Fox is the founding shareholder in Sky and currently owns approximately 39.1 percent of Sky's shares and this deal would see it clinch the other 61 percent.

"In short we are of the view that the deal has a pretty high likelihood of success. This is not to say that we think the offer represents fair value for the shares (which we see at £13.50), but rather that the high premium to the undisturbed share price and the relatively high trading volumes since announcement suggest a lot of investors may be willing to take the offer," Thomas Singlehurst, the head of European media research at Citi, told CNBC via email.

However, given the stock at that date was hovering at around four-year lows, the offer only matches the level at which the share price was trading earlier this year. A significant depreciation in sterling versus the U.S. dollar since the EU referendum in late June has made the economics eminently more digestible for Fox.

"The 21st Century Fox Board and the Independent Committee of Sky are pleased to announce that they have reached agreement on the terms of a recommended pre-conditional cash offer by 21st Century Fox for the fully diluted share capital of Sky which 21st Century Fox and its Affiliates do not already own," a statement from Sky on Thursday said.

Murdoch and his team will be hoping it is second time lucky after a similar buyout approach for Sky in 2010 failed amid a media storm surrounding a torrid phone-hacking scandal related to the Murdoch-controlled News of the World tabloid and concerns over his empire's concentration of media assets.

Subsequent to the deal's collapse, Murdoch spun off his publishing assets into a new entity, News Corp, and shunted the TV and Hollywood studio assets into Fox. The mogul claims the media concentration issue consequently no longer exists.

Deal 'unlikely' to be scuppered by regulatory risk

Simultaneously, the ascendance of alternative online and mobile news sources such as the Huffington Post, VICE and BuzzFeed has broadened the news information landscape in recent years.

Regardless, the deal is expected to be subjected to a closely scrutinized and politically contentious review. Karen Bradley, the British culture secretary, has ten days from now to decide whether the case ignites public interest concerns and should be referred to the U.K.'s media regulator, Ofcom. The European Commission will also have the opportunity to opine on whether the deal raises competition concerns although it approved the previous approach in 2010.

"On the regulatory side, we make the point that this deal is unlikely to face significant competition authority scrutiny (it passed this quite quickly last time round) and also that the political process may be easier than investors fear," Singlehurst said in an email to CNBC.

"Although most investors we speak to think the deal will be referred to Ofcom, the change of structure at Fox combined with the change in the competitive and political landscapes in the UK means that the deal will likely get through this process," he added.

The deal is being pursued by the less common "scheme of arrangement" method allowable under U.K. takeover law. This process can be quicker than a traditional takeover as the approval of only 75 percent of independent shareholders are required for the deal to be legally pushed through rather than the 90 percent threshold a bidder needs to achieve under the alternative process. However, under the scheme of arrangement, Fox would be prohibited from voting given its lack of independence.

Michael Kovac | WireImage | Getty Images

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