Mergers and Acquisitions: Comcast's Takeover of Sky

This article discusses the strategic narrative underlying the deal, the price/valuation of the deal from the perspective of shareholders, the ability to realize revenue and cost synergies, the financial structure of the deal, the organizational/operational challenges, regulatory issues, agency issues, and value enhancement in Comcast's takeover of Sky.

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Finance

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Table of Contents
Strategic Narrative underlying the deal......................................................................................3
Price/Valuation of the deal from the perspective of shareholders in both companies...............5
Ability to realise revenue and cost synergies.............................................................................6
Financial Structure of the deal...................................................................................................6
Organisational / operational Challenges....................................................................................7
Regulatory issues.......................................................................................................................8
Agency Issues.............................................................................................................................8
Value Enhancement...................................................................................................................9
Reference List..........................................................................................................................10

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Strategic Narrative underlying the deal
Mergers and acquisitions play a vital role in the economic activity. Each year various type of
firms engage in a merger or acquisition. Specifically merger and acquisition activity
influences many employees because a worker whose organizations engages in M&As often
donot know what they will get after the company gets merged. Merger can increase the
uncertainty of employees to a significant stage.
Some analyst say that Comcast which owns US broadcaster NBC Universal after acquiring
Sky, has found the path for expansion in worldwide. The satellite broadcaster has expanded
into broadband and phone services. It has started producing original content which includes
movies and also news programming. It holds broadcasting rights to sports in Europe, and
main focus is on soccer. In UK , Sky mainly sells wireless and fixed-line internet services
under wholesale agreements. Comcast has expanded Sky’s broadband reseller strategy into
more European markets. In countries such as the UK, Germany, Italy, Austria and Ireland,
various streaming services and pay TV are operated by Sky. It also runs a streaming service
in Spain. There has been a signal from both the sides of executives from sky as well as
Comcast signalling no radical changes to take place. Comcast is trying to support the sky for
further growth. Technology transfer as well as other kinds of expertise between Comcast in
sky which has the capability of pushing over the top level of innovation by the means of scale
in content and technology. In a recent presentation related to investors, Comcast claimed
about planning to reshape and grow. The content investment of sky include the rise in the
number of Originals and maintenance of its top position in cinemas and sports.
A 22 million pound bid for the company Sky was submitted by the media group of the United
States, Comcast (CNBC, 2018). This submission bid prompted the organisation for dropping
it's over all support towards a lower offer from the business head of 21st Century fox, Rupert

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Murdoch. The bid of 12.5 pounds per share of Comcast was openly welcomed by the
independent directors of Sky. The directors stated that the organisation now would be
engaging with both Fox as well as Comcast. The shareholders of Sky were warned by the
directors regarding none of the bids being able to be put forward to them and hence they were
advised for not taking any kind of action. An offer which was made previously and had put
pressure on Fox that had already taken 39% stake of the company was formalized by the bid
(The Guardian, 2018). The cash offer of 10.75 pound per share was to be raised by such a
bid. Sky claim to have considered all of its available options and remained committed
towards the offer. Several issues of concerned rose due to the deal between 21st Century fox
and sky regarding the influence held by Murdoch over the opinion of public by the means of
owning the British newspapers including The Sun and The Times as well as all the
broadcasters. Further complications were made to the proposed combination due to the
agreement of Fox for selling most of its film and Television assets to the Walt Disney
Company. This agreement also included the stake of 21st Century fox in Sky which was price
at 52 billion dollars (Comcast, 2019). There was no immediate reply given by Disney towards
the request.
The commitments of the United States cable giant Comcast were welcomed by sky. These
commitments were related to addressing the potential concerns of the public interest
regarding Sky News which was the organisation's significant 24 hour news channel.
According to the chief executive and chairman of Comcast, Brian Roberts, the withdrawal of
the recommendations of sky was exactly what the company was looking for which it aimed at
achieving by the means of formalizing its offer (Reuters, 2018). The reporters were informed
by him that much emphasis was to be provided on the shareholders which was confirmed by
the board. Murdoch's son James, played a very important role in building the organisation
into a giant European broadcasters which head operations with several countries such as Italy,

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Britain, Austria and Germany. A committee of independent directors was formed by Sky for
considering the bids.
Price/Valuation of the deal from the perspective of shareholders in both companies
Comcast won the bid over the Sky. But it seem to be not a good news for the investors. The
reason is that Comcast might have overpaid Sky for the acquisition. The logic is that there
was a previous bid between Sky and Comcast, where Comcast could not win that bid. So in
that case Comcast was under immense pressure to win this deal now.
The shareholders of the British broadcaster, Sky have been recommended by the organisation
for accepting Comcast's offer of 40 billion dollars regarding a takeover (iNews, 2018). The
rivalry of Comcast, 21st Century fox was out flanked by the former after submission of a
higher bid in the third round of the auction. The price offered by Comcast was £17.28 per
share where is the same offered by fox was 15.67 per share (The Irish Times, 2018). Due to
the price offer of Comcast being materially superior to that of Fox, it is quite obvious for the
shareholders of sky to accept the offer. In order to go forward with the deal, Comcast is
required to receive a 50% acceptance of the same. Due to the fact that 39% of Sky is
preoccupied by Fox, conquers targets at acquiring the 50% of the remaining 61% share of the
company. This implies the company would require more than 80% of acceptance from the
board.
An argument has aroused that, after losing the previous bid to Sky, now Comcast has to free
up cash and liquidity which is required for the current purchase. Another argument is that
$38.8 billion is a huge number, but the generation of $ 13.8 billion in cash flows in just one
year is more intimidating.

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Ability to realise revenue and cost synergies
This cash flow generation of Comcast has become solid which is good for dividend
payments, Repurchasing and investing.
Sky has already some existing debts. As a result debt of the company is a major concern.
The valuation of Comcast is pretty reasonable. But after acquisition of Sky , the stock prices
are needed to be reconsidered by the investors, which have become more risky than before.
Post deal , 13.8 billion have been generated in free cash flow. The whole transaction is
financed by debt. The liability of Comcast was $65.8 billion. Now the deal would bring an
addition of 1.3 billion GBP (of Sky)
The Debt / Earnings before interest and taxes DA will rise to 3.6 times.
$ 500 million is expected in overall synergies.
Expected growth in 5 years is 14.9%. They have a strong financial model, demonstrated by
their growth in sales, profits, cash flows and have exciting future prospects, particularly
entering new markets.
Financial Structure of the deal
In every merger or acquisition there is a financial structure. In this case, the Comcast Corp.
bids over Sky Plc. The bid price is $38.8 billion. The competitor of Comcast Corp. which is
the 21st century Fox, had also bided on Sky, but ended on the losing side.
Now Sky Plc. has two owners. 60.88% is owned by Comcast. And 39.12% is owned by Fox.
The initial bid amount of Comcast was $33.16 billion, whereas the initial bid amount of Sky
was $35.27 billion. Winning bid was done by Comcast which was an amount of $38.8 billion.

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The value of each share in the winning bid of Comcast was$17.28per share. The value of
each share of Sky was $15.67 per share.
Organisational / operational Challenges
Some of the threats or challenges faced by merger :
1.Identification and communication of the reasons for the M&A to the workforce.
2. Formation of an M&A team and coaching the leader.
3. Comparison of the compensation, union contracts and benefits and making decisions
regarding HR practices and policies.
4. Assessing the cultures of corporate.
5. Deciding who goes and who stays.
After Comcast’s purchase of Sky , challenge will be maintaining the key sport rights.
Rupert Murdoch used sports programming — specifically an exclusive Premier League deal
in the 1990s — to help build Britain’s Sky into a nearly $40 billion company.
Sky’s deals with properties such as the Premier League and Formula One won’t change
with Comcast’s Corp.'s $38.8 billion purchase of the company, a deal that still has to run
through Britain’s regulatory process. Those are iron-clad contracts that will not be broken.
But the cost of keeping those sports, especially the Premier League, on Sky when those
contracts expire already is giving investors jitters. Comcast is going to have to ramp up its
proprietary content production to replace the proprietary licenses that they’re going to lose.

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Regulatory issues
According to 21st Century fox, the sale of its TV Studios and movies to Comcast has been
facing several regulatory risks. Deal with Disney is expected from the board of Fox. Disney
had increased its offer to an approximate 71 billion dollars which was in favour of receiving
the needed regulatory approvals and hence it was meant to be consummated (Independent,
2018). According to a filing of the securities and exchange commission, transactions held
with Comcast carried regulatory risks of a greater deal. These transactions consequently
could be denied for delayed. The content gaining of the distributors related to additional clout
has also become a major concern for the regulators. The distributors have been gaining
content in the form of being content owners and by withholding the same from rivalry
distributors. The NBC Universal is already owned by the largest cable TV provider of the
country, Comcast (Wharton UOP, 2018). The universal was fully acquired by the
organisation about five years ago.
Agency Issues
Every agency faces issues. But they are categorised according to the size of the agency. Some
of them are large enough to face major issues. To run an agency there is always some issues.
The worst customer satisfaction rating ever to be recorded by a government agency for an
organisation in the whole Nation was held by Comcast in the year 2004 and 2007, according
to a survey conducted by the American customer satisfaction index. The customer
satisfaction also included the internal revenue services. Regardless of the organisation,
complaints had been registered by nearly half of the cable customers, as indicated by the
ACSI. It informed that cable has been the only industry to have scored below 60.
In the year 2014, a conversation held with Comcast was recorded by a technology journalist
named Ryan block where an attempt to disconnect the service was made why him. Comcast

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officially apologized after the recording went viral.
In the year 2015, a Comcast subscriber named Liza Brown residing in Washington made a
call to Comcast for downgrading her cable package. During the call she was offered within
upgrade which was denied by her. It was discovered by Lisa during the next billing cycle that
her name was changed to something very disrespectful. Comcast later spoke to the customer
and apologized for the in appropriate an unacceptable change of name. According to the
organisation, it has zero tolerance for such disrespectful behaviour and claimed about
conducting a thorough investigation for the determination of the incident.
Value Enhancement
The overall value of Comcast is currently lesser than that of Netflix who is market value has
increased and become more than $150 billion. The video subscribers of the largest cable
company of the United States, Comcast have been leaving the company and moving towards
streaming services like Netflix. While Comcast lost around half a million subscribers in the
first quarter of 2018, Netflix has gained more than 7 million of streaming users in the first
quarter of the year. However, it cannot be denied that the business of Netflix and Comcast are
completely different. Organizations such as DreamWorks and NBC are owned by Comcast.
In addition to cable, it owns a huge broadband company. To a certain extent the value of the
merger Sky and Comcast has gained some value, which will increase the customer base.

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Reference List
CNBC, 2018. Comcast outbids Fox in a $39 billion takeover of Sky. [online] Available at:
https://www.cnbc.com/2018/09/22/sky-comcast-fox-36-billion-takeover-auction.html
[Accessed on 14 April, 2019]
The Guardian, 2018. Sky chief executive receives £37m after Comcast takeover. [online]
Available at: https://www.theguardian.com/business/2018/oct/12/sky-chief-executive-
receives-37m-after-comcast-takeover [Accessed on 14 April, 2019]
Comcast, 2019. Comcast’s Proposal for Sky. [online] Available at:
https://www.cmcsa.com/proposal-for-sky [Accessed on 14 April, 2019]
Reuters, 2018. Comcast's $40 billion Sky takeover becomes unconditional. [online] Available
at: https://in.reuters.com/article/sky-plc-m-a-comcast/comcasts-40-billion-sky-takeover-
becomes-unconditional-idINKCN1MJ1XU [Accessed on 14 April, 2019]
The Irish Times, 2018. Comcast’s Sky takeover: the winner pays for it all. [online] Available
at: https://www.irishtimes.com/business/media-and-marketing/comcast-s-sky-takeover-the-
winner-pays-for-it-all-1.3640025 [Accessed on 14 April, 2019]
Wharton UOP, 2018. Comcast Is Paying Up for Sky: Now What? [online] Available at:
https://knowledge.wharton.upenn.edu/article/sky-comcast-merger/ [Accessed on 14 April,
2019]
Independent, 2018. Comcast beats Rupert Murdoch's Fox in Sky takeover battle. [online]
Available at: https://www.independent.co.uk/news/business/news/rupert-murdoch-sky-
takeover-auction-comcast-21st-century-fox-a8550666.html [Accessed on 14 April, 2019]

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iNews, 2018. Sky takeover: what Comcast’s £30bn bid means for Sky customers – will prices
now rise? [online] Available at: https://inews.co.uk/news/sky-comcast-takeover-latest-what-
it-means-prices/ [Accessed on 14 April, 2019]