After years of will they/wont they speculation, on Friday last week 21st Century Fox revealed that it had finally made an offer to acquire the 61% of Sky plc (LSE: SKY) the group doesnt already own.
Fox is offering10.75 per share, which is 40% more than Skys Thursday closing price before the bid was announced. The offer values Sky at18.5bn, less the value of any dividends subsequently paid by the company.
Fox and Sky have tried to merge in the past, but the last attempt was thwarted by the 2011 hacking scandal after it emerged that journalists at the News of the World had hacked the phone of the murdered teenager Milly Dowler. The scandal left a black mark on the whole Murdoch empire.
This time around theres a higher chance the merger will go ahead. Fox is under pressure to increase revenues amid a hostile media environment. Where cable providers such as Fox used to reign supreme, its now the content producers that have the edge as streaming sites such as Netflix and Amazon Prime take over the traditional pay-TV market.
Fox does produce some of its own content, but the brand needs size and diversification to take on its peers effectively. Sky offers just that.
Opposition to the deal
The biggest oppositionto the deal seems to be stemming from Skys existing shareholders those who own the 61% of the business not already owned by Fox.
It looks as if the consensus among these investors is Rupert Murdochs Fox is making an opportunistic low-ball bid for Sky after recent declines in the broadcasters share price. Indeed, between mid-2015 and Thursday evening before the bid was announced, shares in Sky had slumped by more than a third as sentiment towards the company deteriorated. This decline, coupled with a weaker pound following the Brexit vote, has slashed billions off Skys price tag. So its clear that the bid is opportunistic, but its unlikely Fox will come back with a higher offer any time soon. The groups debt is already at worrying levels and as Murdoch already controls 39% of Sky, he only needs a small percentage of independentshareholders to vote in favour for the deal to go ahead.
Aside from existing shareholders being concerned about the price offered, the other significant headwind to this deal comes from regulators. The secretary of state has 10working days to make an initial decision on whether to intervene after formal notification of the merger to the competition authorities. However, as of yet the government hasnt yet received formal notification of the proposed takeover. Therefore, at this point, its hard to gauge the governmentsview on the offer.
All in all, Foxs latest bid for Sky has mixed potential outcomes for shareholders. This could be just the beginning of a long battle between regulators, Sky shareholders and Fox as the three parties come up with the best deal to appease all stakeholders.
For Skys existing shareholders this means a period of uncertainty is likely, but as the underlying business continues to perform well, for long-term investors, this uncertainty is unlikely to be a huge concern.
Looking for dividends?
Sky is one of the market’s dividend champions. Shares currently support a dividend yield of 3.4% and the payout is covered 1.5 times by earnings per share.
If Sky is taken over, this will leave a hole in income investors’ portfolios so if you’re looking for other dividend champions, I strongly recommend you check outthis special report, which gives a rundown of what I believe is one of the hottest dividend stocks in London today.
The exclusive report entitled A Top Income Share looks at a hidden FTSE giant that’s already an income champion but is also investing for growth, and these ambitious expansion plans should power dividends through the roof in the years ahead.
To discover more justclick here and enjoy this exclusive wealth report.It’s 100% free and comes with no obligation.