As Comcast reported first quarter earnings on Wednesday, the cable giant also formalized its $31 billion cash offer for British pay TV operator Sky. The bid represents a 16 percent premium to the current offer from 21st Century Fox.
Comcast first detailed the offer of £12.50 per share back in February.
“We are delighted to be formalizing our offer for Sky today. We have long believed Sky is an outstanding company and a great fit with Comcast,” Comcast CEO Brian Roberts said in a statement. “Sky has a strong business, excellent customer loyalty, and a valued brand. It is led by a terrific management team who we look forward to working with to build and grow.”
Fox, which already has a 39 percent stake in Sky, said in a statement that it “remains committed” to its offer and “is currently considering its options.”
“A further announcement will be made in due course,” the statement said.
On Wednesday’s earning call with investors Roberts said that Comcast loves its position of being both an owner and distributor of content and is impressed by continued momentum in Sky’s business, which is a company that looks very similar to Comcast. He noted both companies’ combined customer base of about 52 million would allow Comcast to invest more in original and licensed programming, as well as technology.
“Comcast believes that, combined, Comcast and Sky will create a business equipped to compete more effectively in a rapidly changing and highly competitive industry,” the company said in its announcement. “Together, the companies would be well positioned to drive growth to provide attractive returns to Comcast shareholders and to benefit the employees and customers of both organizations.”
MoffettNathanson analysts told investors, who are likely upset about the bid when compared to alternatives like buying stock back, to also look at the signal the move sends.
“Yes, cable is decelerating, but in doing so, it should generate lots of cash,” the analysts wrote in a research note to investors. “In a perfect world, investors would be buying those cash flows. Instead, the company is signaling that those cash flows will be diverted to a high-risk gambit for massive scale in media.”
Comcast said it anticipates realizing about $500 million in operating synergies, with about $300 million on the expense side and $200 million in revenue. MoffettNathanson analysts said while the DOJ and AT&T face off in court to present two alternate views of vertical integration, “Comcast is illustrating an entirely different problem.”
“It’s not whether there are operating synergies between these two businesses…it’s whether they can comfortably exist together at all given such entirely different ambitions, free cash flow trajectories..and target investors,” the analysts wrote.
As part of the formal announcement, Comcast made the following commitments:
- Maintain annual expenditure in Sky News for ten years, at a level not less than incurred in Sky’s 2017 financial year;
- Establish an editorial Sky News board with the responsibility to ensure the editorial independence of Sky News for ten years;
- Maintain Sky’s UK headquarters in Osterley for five years; and
- Not acquire any majority interest in UK newspapers for five years.
