The time is right for a Fox take-over of Sky, Macquarie says
By Alexander Bueso
Date: Friday 26 Aug 2016
(ShareCast News) - The time was ripe for Fox to pick-up the 61% of Sky which it did not already own, following the 32% year-to-date share price drop in the shares of latter is US dollar terms, analysts at Macquarie said.
For Sky, a deal would help it to consolidate its content offering via Fox´s financial backing, which could well include Formula One, which was up for sale, the broker said in a research note published on 25 August.
Europe´s pay TV market on the other has a structure which is "good" for strong incumbents such as London-listed Sky, with Fox facing a more difficult environment in the US.
Fox could thus gain a premium distribution service, the broker´s analysts explained.
"European pay TV markets are more concentrated, more vertically integrated, less penetrated into households, more flexible in terms of network packages offered, and generally cheaper than US pay TV bundles," Macquarie added.
Indeed, proposed changes to regulations in Europe could be another tailwind for Fox if changes make broadcasters' online transmissions more easily available across borders.
"This would reward scale and reach."
But do the numbers add up?
Yes, Macquarie said, adding that Sky´s shares remained "significantly" undervalued.
In an all-cash deal scenario, with Fox stumping-up a "modest" 20% price premium, implied a take-out price-to-earnings multiple of 17 times´ Sky´s fiscal year 2017 earnings or 11 times EV/EBITDA, according to the broker.
Syngeries on costs would add 3% to year three earnings per share and 25% by year 10.
"SKY investors may well demand a higher premium, which we think Fox might be willing to pay for the long-term strategic logic of this deal."
In a separate report published on the same day, Macquarie reiterated its 'outperform' recommendation on Sky shares with a target price of 1,400p.
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