Just give us more. The Sky Plc auction has become a show of greed. On Wednesday, Twenty-First Century Fox Inc. made a new offer of 14 pounds per share, valuing the British satellite station at 25 billion pounds ($ 33 billion).
But the hedge funds had seen coming, and they had sent Sky's shares are above that level at the end of last month. Sky bidders look like a modern Tantalus, condemned to grab fruit permanently out of reach.
Sky's independent directors recommended the last offer despite not reaching the current price of approximately 15 pounds. In the absence of an acquisition battle, the shares would likely trade between 9 pounds and 10 pounds. It is difficult to see how the issuer could, by itself, obtain the actions at the level of supply in the foreseeable future.
In addition, the last offer raises the floor below the shares. Previously, the 12.50-pound offer from Comcast Corp. had provided some support.
Remember that the battle for Sky is part of a much larger war between Comcast and Walt Disney Co. over the control of Fox's entertainment assets. A risk to the shareholders of the British company was that all three came to an end. agreement to split Fox and Sky between them, leaving the Comcast offer the best on the table.
But Sky's board does not deserve all the credit. The new offer may be seen as the result of the revised agreement that Disney approved last month to buy most of Fox, including its 39 percent stake in Sky.
This should trigger a separate offer of Disney by Sky according to UK acquisition rules designed to prevent them from taking control of the British company through the back door. Disney and Fox, who are partners, are moving forward.
Investors expect the mandatory offer to be approximately 14.60 pounds per share. Disney would not have to make this offer until its agreement with Fox is completed, potentially within a year. Apply a discount for the value of money over time, and that mandatory offer is probably worth the same as Fox's offer today. If there is any doubt that the UK Acquisition Panel is the invisible hand in all this, Disney has offered to pay compensation to Fox if the latter manages to buy Sky, but can not acquire Fox. This means that Fox would be paying only 13 pounds per share.
Now it's up to Comcast to come back with a higher offer. Even if you pass the Sky auction and focus on surpassing Disney for Fox, you will be caught by the same procurement rules in the UK that will require you to make a follow-up bid for the British target.
Sky investment Crispin Odey thinks the company could get 18 pounds per share. A shake well beyond 15 pounds seems harder to justify. An offer at that level would not cover Sky's cost of capital within three years. A higher synergy number, roughly twice the current $ 500 million that Comcast gave, could get there. Or Comcast could wait longer for the agreement to generate value.
Sky's board of directors has (generously) allowed Fox to amend his offer, so he must receive the owners' acceptances of just over 50 percent of the shares. You only need 11 percent to get there. That, and the rest rate Disney offers Fox, should get some heat from the auction.
The scope of Sky's share price far in advance of the offers offered is shrinking. Even the greed of hedge funds has a limit.
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Edward Evans at eevans3 @ bloomberg.net