Fox reaches $14.2-bn preliminary deal to buy rest of Sky

21st Century Fox reached a preliminary deal to acquire full control of Sky Plc for £11.2 billion ($14.1 billion), as billionaire Rupert Murdoch seeks to consolidate his television empire.

Fox, which already holds a 39 per cent stake in Sky, proposed acquiring the rest of the stock for 10.75 pounds a share, according to a filing Friday in the UK That represents a premium of 36 per cent over Thursday’s closing price. The deal was reached between independent directors of both boards, though other elements of the transaction remain under discussion, and there’s no certainty an official offer will be made by Fox, London-based Sky said.

 

Sky shares closed in London at £10  a 7 per cent discount to the offer, suggesting some investors are skeptical a deal will be completed. Fox advanced 3.7 per cent to $29.69 at 11:15 am in New York after rising as much as 6.2 per cent.

Gaining total ownership of Sky would give Fox, which owns cable networks including FX and National Geographic, a powerful distribution platform in Europe for pay television and internet. Sky provides satellite TV service to 21.8 million customers across the UK, Ireland, Italy and Germany.

The satellite provider has staved off competition from phone and cable companies in part by securing rights to exclusive programming, such as sports and HBO shows, along with original content. The company has paid record sums to air Premiere League matches and keep ahead of BT Group Plc, which also broadcasts some of the league’s games. While Sky held on to most matches, viewers are down this year, and there’s no guarantee the outlay will prevent subscriber losses.

Murdoch has long made clear his desire to own all of the asset. He was thwarted in a 2010 attempt to buy out other shareholders for £7.8 billion. The proposal was derailed by revelations that two of his newspapers hacked into the mobile phones of celebrities and politicians.

Fox will need to clarify whether it intends to go forward with an offer by Jan. 6, according to U.K. takeover rules, Sky said.

With the cost of games rising, Sky’s operating margins have fallen for four straight years. In the 2011-2012 season, Sky was paying 4.7 million pounds ($5.8 million) per game. Now, Sky is paying 11.07 million pounds per game.

Sky’s weaker share price this year and the drop in the pound relative to the US dollar make the acquisition cheaper for Fox.

Content, Distribution

Murdoch’s attempt to put television programming and distribution under one roof follows AT&T Inc.’s $85.4 billion deal earlier this year to acquire Time Warner Inc. Both transactions are likely to face heavy scrutiny from regulators who may seek to ensure that the companies don’t prioritize their own networks’ content over competitors’.

Britain’s Department for Culture, Media and Sport, which has responsibility over media takeovers, had no immediate comment on the deal.

The prospect of a Fox approach has spurred complaints over corporate governance at Sky, where Murdoch’s son, James Murdoch, is chairman. Some investors have raised concerns about whether they would get a fair shake if Fox, which 43-year-old James Murdoch leads as chief executive officer, were to seek a merger. James Murdoch previously ran Sky as CEO from 2003 to 2007.

More than 28 percent of votes cast at the Sky’s annual meeting in October opposed Murdoch’s re-election to the board. Excluding votes representing Murdoch interests, about 51 percent were against James Murdoch’s re-election, according to Manifest, a London-based proxy voting agency that has raised governance concerns about his role.

Sky has formed an independent committee of the board, excluding James Murdoch, to consider the deal with Fox, it said in the statement. Each of the eight directors on the committee are considered free from conflicts of interest.

Sky’s board is being advised by Morgan Stanley, PJT Partners and Barclays.