Comcast recently made a surprise bid for Sky, a U.K. media broadcaster that is currently being chased after by Rupert Murdoch, an 87-year-old billionaire who is currently the Executive Co-Chairman of 21st Century Fox. This could be the beginning of a battle between two of the largest players in the media arena today.
Murdoch’s plan for 21st Century Fox is to purchase the remaining portion of Sky, which is currently holds a 39 percent stake in. After facing scrutiny over the transaction by the U.K. government, 21st Century Fox has agreed to sell a portion of Sky to Disney.
However, Comcast (also the operator of NBCUniversal), offered a bid for the entirety of Sky at a 16 percent premium on 21st Century Fox’s offer. This competition could be further complicated if Disney decides to enter the bidding war by making a direct offer to Sky shareholders, cutting out 21st Century Fox in the process.
Out of the two current (and one potential) players in this race, Comcast seems to have the strategic advantage; Comcast is not only offering a higher bid, but also won’t be subjected to as many regulatory evaluations as 21st Century Fox. Many media regulators in the U.K. are against 21st Century Fox’s bid for Sky, arguing that the acquisition will grant too much power to the Murdoch family.
So how do these takeover bids work? Takeover bids are corporate actions that involve an acquirer that makes an offer to a target company’s shareholders, in an effort to acquire the target shares and take over the company. This typically happens in two ways; the two-tier bid occurs when an acquirer offers a premium above the current share price to incentivize shareholders into selling their shares; the any-and-all bid involves an offer by the acquirer to purchase all of the target’s outstanding shares at a determined price.
Suppose AcquirerCo is interested in acquiring TargetCo. AcquirerCo begins to buy TargetCo shares on the public market. Due to SEC regulations, AcquirerCo must publicly and formally declare how many shares it owns after acquiring a 5% stake in TargetCo (through a form known as Schedule 13). In this form, AcquirerCo must disclose its intentions – whether it plans to fully acquire TargetCo or simply hold TargetCo shares as an investment. At this point, AcquirerCo has the option to launch a bid for TargetCo, and TargetCo has four options in response.
The first option is the simplest: to accept the terms of the offer. The second option is to negotiate more favorable terms for TargetCo, or negotiate a different price. The third option is to find a different potential acquirer who might be interested in acquiring TargetCo at a more favorable price. The fourth option is the most complex and defensive response to acquisition offers, and is known as the “poison pill.” If TargetCo accepts the offer, a regulatory commission must review the transaction to ensure that it does not create a monopoly. If the regulatory commission approves of the transaction, the acquirer and target company both execute the transaction, and the acquisition is complete.
In the coming months, it might be interesting to see how Sky responds to each of its bids, as well as how its potential acquirers plan to pursue the company. Watch for some of these elements, and try to figure out the outcome and how each party plans to execute this transaction.