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The £11.7bn Fox bid remains in the balance as the group reports solid growth

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At 925p pay-TV firm Sky (SKY) is trading at a material discount to the £10.75 per share bid on the table from Rupert Murdoch’s
21st Century Fox.

This reflects uncertainty over the deal which currently sits with the UK Competition and Markets Authority (CMA).

Prospective investors in Sky have two key questions to consider:

1. Will the deal go through?

2. If not, what is the future of the company as an independent entity?

A partial answer to the second question was provided by a first quarter trading update on
12 October.

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Among the reasons why shares in Sky had drifted to 750p before Fox bid for the 61% of the business it did not already own was a fear the company had hit saturation point in terms of the number of subscribers and would no longer be able to deliver growth.


Analysts at Citibank note: ‘The counterargument was that increased product sell-through (mobile, broadband, fibre), transactional revenues (pay as you go and entertainment sales) and segmentation (Now TV/Sky Ticket at the low end; SkyQ at the high end) would allow the group to continue to post solid revenue growth. It looks like the latter is coming through with decent momentum across the business.’

Sky’s like-for-like revenue rose by 5% to £3.3bn in its first quarter despite pressure on consumer spending and lower spend in UK television advertising.

It added 160,000 new customers and more than 800,000 subscription products, while pay-as-you-go sports and entertainment proved particularly popular growing by 12%.

On this basis Citi concludes the market’s perception that Sky would fall back to 750p if the Fox takeover fell apart is ‘too bearish’.

The ultimate destiny of the bid may not be revealed until 6 March 2018 when the CMA has to report back to culture secretary Karen Bradley.


Liberum analyst Ian Whittaker has upgraded his recommendation on Sky from ‘hold’ to ‘buy’ with a reiterated target price of £10.60.

He believes concerns over the bid being blocked are overdone, noting the likelihood of the Labour Party, which is particularly hostile to Fox, forming a new government before the CMA reaches its
decision is slim.

Sky shareholders are also in line to receive a 10p special dividend in February 2018 as compensation for delays to the £11.7bn acquisition by Fox. (TS)


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