Comcast Corp. won its hard-fought prize in a rare London auction over the weekend — submitting the winning bid of $40 billion for the European pay-TV company Sky — but the hangover hit Monday.
The Philadelphia cable television giant suffered its worst day on Wall Street in nearly a decade — its shares tumbled nearly 6% to about $35.63 — as investors reacted by concluding that Comcast dramatically overpaid for London-based Sky, which has valuable sports rights, premium shows such as HBO’s “Game of Thrones” and the influential Sky News channel. Sky has 23 million customers in five countries in Europe.
Meanwhile, shares of Walt Disney Co. — which lost the auction — climbed 2.1% to $112.77.
“Disney dodges a bullet (and then some) as Comcast pays a huge premium for Sky,” Bernstein & Co. media analyst Todd Juenger wrote in a Monday report. “This weekend’s outcome of the bidding war for Sky was, in our view, the best possible result for Disney. We never understood why Disney would want to operate a European [satellite TV] business.”
Comcast Chief Executive Brian Roberts badly wanted to add Sky to his portfolio because Comcast has struggled to build an international profile. Gobbling up Sky — even at a huge premium — will immediately give Comcast exposure in some of Europe’s most prosperous countries: Britain, Ireland, Germany, Austria and Italy.
The sealed bidding process, a requirement of Britain’s regulatory Takeover Panel, which conducted Saturday’s auction, contributed to the sky-high bids. Comcast feared losing the prize after 21st Century Fox, which was bidding on behalf of Disney, twice raised its offer since Comcast jumped into the Sky bidding earlier this year.
On Saturday, the Fox-Disney team increased its offer for Sky in the auction’s first round. Then Comcast raised its bid in the second round. Both companies submitted sealed bids in the sudden-death round — so Comcast bet big and ended up paying $8 billion more than its initial bid for Sky back in February. At that time, Sky’s market value was under $20 billion.
“By the very nature of an auction, the so-called ‘winner’ of the auction is the party willing to pay more for an asset than any other party believes it is worth,” media analyst Michael Nathanson wrote in a Monday report, observing that Comcast “grossly overpaid” for Sky. “We fear that Sky will be an albatross,” he said.
Sky shares soared 8.6% in London trading. In the U.S., Fox shares rose 1.5%. Rupert Murdoch’s Fox currently owns 39% of Sky, so the company benefited from the tense bidding war. Murdoch was instrumental in the launch of Sky in 1989, but his company’s stake in the pay-TV company will be transferred to Disney as part of the Burbank entertainment giant’s proposed $71.3-billion takeover of much of Fox.
Britain’s Takeover Panel presided over Saturday’s auction, marking the first time in a decade that the London-based regulatory body conducted a corporate auction. Sky’s independent board members quickly approved Comcast’s winning bid of $22.75 a share. Fox offered about $35 billion — or $20.63 a share — on behalf of Disney.
Fox was involved in the bidding because it had initiated the auction in December 2016 when the company made an offer to buy the 61% of the shares it didn’t own. But Fox’s proposed takeover of Sky quickly ran into resistance in London, where activists and Labor Party politicians worried that the Murdoch family already had too much sway over British media. The family controls another company, News Corp., which owns the Times of London and the tabloid Sun.
The resistance continued in London throughout 2017. Murdoch eventually decided to sell the bulk of his company, selecting Disney and its chief executive, Bob Iger, as the preferred suitor — not Comcast, which tried to hijack that separate auction.
Murdoch’s Fox will retain the Fox News Channel, Fox Business Network, national sports networks, Fox broadcast network and the company’s fleet of television stations, including KTTV-TV Channel 11 and KCOP-TV Channel 13. Disney plans to purchase the prolific Fox movie and television studios, the FX and National Geographic channels, Fox’s stake in streaming service Hulu and Fox’s popular Star TV service in India.
Fox’s 22 regional sports networks, including Prime Ticket and Fox Sports West, will be sold off to some other company. The U.S. Department of Justice approved Disney’s takeover of much of Fox as long as the companies divest the regional sports networks.
3:40 p.m.: This article was updated with analyst commentary and closing share prices.
This article first posted at 8:35 a.m.