21st Century Fox Sets Preliminary Deal to Acquire All of European Pay TV Giant Sky

UPDATED with Fox statement

LONDON – 21st Century Fox has clinched a preliminary agreement to take over European pay-TV giant Sky in a cash deal valued at about $23.2 billion. The acqusition has been a long time coming for the Murdoch clan, which has long sought full control of the platform in which it already holds a 39.1% stake.

Fox’s effort to bring Sky into the fold reflects the newly ignited market for mega media mergers. AT&T and Time Warner in October set an $85.4 billion merger pact that is now wending its way through the federal approval process. Lionsgate this week closed on its $4 billion acquisition of the Starz pay TV channels.

“In the past several years, 21st Century Fox has consistently stated that its existing 39.1% stake in Sky is not a natural end position,” Fox said in a statement. “A proposed transaction between 21st Century Fox and Sky would bring together 21st Century Fox’s global content business with Sky’s world-class direct-to-consumer capabilities, which have made it the number one premium pay-TV provider in all its markets. It would also enhance Sky’s leading position in entertainment and sport, and reinforce the U.K.’s standing as a top global hub for content generation and technological innovation.”

Sky first revealed the negotiations in a statement issued Friday. Fox has yet to publicly comment on the transaction. Sky said its independent directors have been in negotiations with Fox execs and accepted the offer price of $13.51 per share, which represents a roughly 36% premium over the recent closing price of Sky shares.

“It’s inevitable. You have AT&T buying Time Warner, you have Comcast-NBCUniversal. [And now] you have Fox combining itself with Sky. It’s all these content companies making a bid as it relates to pay-TV assets,” said Mary Ann Halford, media specialist and senior managing director with FTI Consulting in London.

Sky’s statement warned that deal terms are not complete and that there’s no certainty of Fox making a formal binding offer. But the media biz has been waiting for years for Fox to pounce again on Sky after its previous effort to acquire the outstanding 59.9% foundered five years ago amid Britain’s phone-hacking scandal. The timing of the new bid is no surprise given the decline in Sky’s share price in recent months and the steep fall in the value of the pound following June’s Brexit vote, which has made the deal much cheaper in dollar terms.

The hacking scandal, in which some Murdoch-owned tabloids were found to have illegally intercepted voicemail messages on the cellphones of celebrities and even of a murdered teenager, badly damaged the Murdochs’ standing in Britain and torpedoed their attempted takeover of Sky just as a deal was on the cusp of being done. Fox CEO James Murdoch was in the thick of the controversy as he was the exec in charge of the newspaper division at the time. James Murdoch is also the former CEO of Sky and has made no secret of his interest in controlling the business.

Given that Fox has maintained a war-chest ever since the aborted 2011 takeover, media biz watchers have known that it was a matter of when, not if, Fox would make another run at Sky after the political smoke cleared. As of the most recent quarter, Fox has about $4.7 billion in cash on its books.

“It’s no longer as immediately toxic as it would’ve been had they tried to proceed at the time” of the hacking scandal, said Mathew Horsman, a media analyst in London and the author of “Sky High: The Inside Story of BSkyB.” “The desire to do it and possibly the logic in doing so was always there.”

Horsman added that he sees no regulatory problems in Europe that would sink the deal.

Sky said it has formed a committee of independent directors to hammer out the acquisition deal. The committee comprises Sky’s CEO Jeremy Darroch, Martin Gilbert, Andrew Sukawaty, Andrew Griffith, Tracy Clarke, Adine Grate, Matthieu Pigasse, and Katrin Wehr-Seiter.

Sky has 22 million subscribers across five countries: Italy, Germany, Austria, the U.K. and Ireland.

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