The paradox known as the gunfighter’s dilemma insists that a reactive shot is more deadly than an isolated one. So neither Comcast nor 21st Century Fox had a tactical advantage in the final shootout to control Sky. Both bid blind, in an auction run by the UK’s takeover regulator. With no opposing price to react to, beyond that set by Comcast itself in the second round, the US cable giant outgunned the US news and entertainment group with a winning bid at an enterprise value of some £37bn.
It is moot who has really been left sprawling in the dust by the encounter, whose prize is a high-quality foothold in the European media industry. Comcast is paying an extraordinary price for Sky. The UK-listed broadcaster and broadband group had been written off as doomed to slow decline by many UK investors, until Fox came in with a long-awaited offer for the group in December 2016. The premium Comcast is offering over the Sky market price just before that offer is an incredible 124 per cent.
The multiple of ebitda to enterprise value is an elevated 15 times, according to data for S&P Global. But this is also the ratio at around which Disney is buying the entertainment assets of Fox, including a 39 per cent stake in Sky.
As a result, Comcast and Disney are now confronting each other down a dusty main street. The Mouse has to decide whether to sell out at £17.28 per share, as independent shareholders would be well-advised to do. The alternative is to hang on as a minority investor, powerless except in the ability to block the integration of Sky by Comcast.
That would leave the cable group, which is menaced by the US trend for “cord-cutting”, unable to trade content and technology with Sky except at arm’s length commercial rates. Comcast would still be stuck with sharply higher net debt of over $100bn, a quick-and-dirty calculation suggests. That is equivalent to about 3.3 times combined forward ebitda, which is high, though not ruinous.
You may not credit great prudence to Comcast boss Brian Roberts, who jokingly claimed a conversation with a London cabbie inspired him to bid for Sky. But you cannot fault his resolve. He won because he wanted Sky more. Given doubts over Comcast’s business model – Disney has the backstop of a superb rights catalogue – he may simply be more desperate.
Sky, meanwhile, has proved all its detractors wrong. A business whose debt-burdened demise was regularly prophesied in the noughties survived monopolistic competition to become a trophy asset in the digital era. It is Sky, rather than Comcast, that emerges from the gun smoke as the real hard-bitten survivor.
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