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Fox owns 39 percent of Sky, which Disney CEO Bob Iger has called a "crown jewel" among Fox's assets. But when Disney decided last week to increase its offer for Fox to $71.3 billion ($38 a share), topping Comcast's bid, Fox did not raise its corresponding bid to buy the 61 percent of Sky that it doesn't already own.
While Fox is a much bigger name in the U.S., Sky isn't small potatoes — it could be worth more than $65 billion itself. That's a huge company to hang in the balance as a potential bargaining chip in the larger fight for Fox. People close to Sky are unsure about how Disney sees its future should Iger end up victorious in buying Fox, according to people familiar with the matter, who asked not to be named because its internal discussions were private.
Fox and Disney are working together to decide if Fox will again bid for Sky. Fox doesn't have to bump its bid yet, and Sky isn't ready to put either bid to a shareholder vote. But several people close to Sky thought an increased bid would come at the same time Disney bumped its bid for Fox.
It could be that Disney is signaling to Comcast that it's willing to let Sky go if Comcast will give up on Fox, said Jonathan Chaplin, an analyst at New Street Research. Disney and Comcast can't directly communicate about splitting any of the Fox assets unless Fox releases Disney from its already-signed merger agreement.
"If Disney doesn't bid again on Sky, perhaps Comcast lets them take Fox for $38 a share, and Comcast walks away with Sky, and you don't force each side to overpay massively," said Chaplin. "They could save each other a lot of hassle."
Fox said in a regulatory filing that it "remains committed to the Sky acquisition and is currently considering its options. Completion of the Sky acquisition is not a condition to either party’s obligation to consummate the transactions."
Fox and Disney spokespeople declined to comment. A Sky spokesperson couldn't immediately be reached for comment.
Sky has been in play for a long time.
In December 2016, Fox made its initial bid for all of Sky, but that was held up by U.K. regulators on concern that Fox's Rupert Murdoch would have too much control over British television and newspapers. Comcast topped Fox's bid in April, offering $31 billion for the 61 percent of Sky that Fox doesn't own, causing independent directors at Sky to withdraw their support of the Fox deal.
That remains the current state of bidding for Sky.
In the battle for Fox, Disney and Comcast haven't shown any signs that they're willing to go easy on each other. Nor has Disney suggested it would be willing to cede Sky to Comcast.
At the same time, Iger has not yet said that Fox/Disney will top Comcast's latest offer. He declined to elaborate on his company's plans for Sky in a conference call last week.
"We don't have an update on Sky," Iger said on June 20. "Fox is in the driver's seat regarding the 61 percent that they do not control."
Disney "loves the asset" and still really wants it, according to a person familiar with Disney's thinking.
Although Sky is primarily a service provider, selling TV, internet and phone service to retail customers, it also owns content, including the rights to Premier League soccer. This fits nicely with Disney's ESPN. Sky also owns an over-the-top distribution service, and Disney plans to launch its own OTT product next year.
"Sky is just an amazing platform," Iger said in a December interview with Bloomberg TV. "Not only does it provide consumers with a great consumer experience in terms of access to the programming, but also creates a lot of great programming, from sports, to news, to all forms of entertainment. We’ve actually distributed a lot of our programming on Sky, we’re extremely impressed with their user interface, their ability to attract and retain consumers, the value proposition to their consumers."
Moreover, Fox seems to be favoring a Disney deal because it believes a Comcast buy would create "higher regulatory risk leading to the possibility of significant delay," the company said in a filing on Tuesday.
At the same time, there are obvious benefits for Disney if it sits out.
Dropping a pursuit of Sky would lower Disney’s debt burden and potentially please its shareholders. (Disney says it would have a net debt-to-EBITDA ratio of four times with Sky and 3.4 times without.)
Lowering this debt burden could raise Disney's share price. This in turn would be good for Fox, because it would raise the value of the half cash-half stock offer.
Iger would still get Fox's movie and TV studio, cable channels FX and Nat Geo, and stakes in Star India and Hulu — as well as the 31 percent of Sky that Fox already owns. (Although there's some question whether Disney would hold on to that portion if the rest goes to Comcast.)
Comcast, meanwhile, is still weighing its counteroffer options to Disney's increased bid.
From a core business standpoint, Comcast is a more logical buyer for Sky than Disney. Sky, like Comcast, sells TV, Internet and phone service to retail customers. The company has about 23 million retail customers throughout Europe. Comcast is intimately familiar with the distribution business, while Disney has never run a pay-TV operator or distributor of Internet and phone service.
If Comcast were to end up with 61 percent of Sky, and Disney were to buy the bundle of Fox assets, Disney might not want to keep its minority 39 percent. Disney would probably sell the minority stake to Comcast, although there may be some strategic value in keeping it, Chaplin said.
Still, the most likely scenario may be that Comcast loses Fox to Disney but wins Sky in a bidding war, and everyone overpays for everything, Chaplin said.
"I still think Comcast will push Fox to the max and lose," Chaplin said. "Then, with $100 billion in its war chest, if Comcast really wants Sky, it can get it. For Comcast, Sky gets them the most strategically, while Disney has to have the movie studio and Star India. This would be the closest opportunity for detente."
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com, and is a co-owner of Hulu.